Public
Bill
Committee

Tuesday
29 March
2011

(Afternoon)

[Mr
James Gray in the
Chair]

‘excluding
amounts in an Individual Savings Account or other prescribed saving
account where the claimant is in work’.—(Stephen
Timms.)

4
pm

The
Minister of State, Department for Work and Pensions (Chris
Grayling): We left at the moment I posed the question to
the Opposition: where is the money coming from? I will not extend my
remarks much beyond that, although I will of course happily respond at
the end of the discussion to any issues raised by members of the
Committee.

The Opposition
are trying to amend subsection (1), which
states:

“For
the purposes of section 3, the financial conditions for a single
claimant are
that—

(a)
the claimant’s capital, or a prescribed part of it, is not
greater than a prescribed amount”.

Returning to the now
celebrated bookcase, there is plenty of ability in the future for the
Opposition, in the unlikely and unhappy event that they are successful
in a future general election, to amend the regulations to achieve what
they wanted to achieve this afternoon. The measure is purely enabling;
it does not set in stone a £16,000 limit or an individual limit.
It does not remove the flexibility that the right hon. Member for East
Ham waxed so lyrical about all those years ago in Committee. What it
does is simply create a vehicle to establish a limit, which is
sensible. The hon. Gentleman gave a number of examples
earlier, and on one or two occasions he was actually becoming the
champion of the Department. He talked about inheritance. I do not know
about him, but I happen to believe that if someone inherits many
hundreds of thousands of pounds from a relative, they should not seek
to continue to receive money from the state. That makes it far more
logical to set in place a capital limit. Inevitably, the amount of that
capital limit will be decided by Ministers and be based on financial
circumstance and on what they think is the right mix.

The hon.
Member for Redcar, who has just arrived in Committee, was absolutely
right to point out this morning the discrepancy between the capital
limits rules for those who are out of work and for those who are in
work. Under the current system, those who are in work are able to
preserve capital and those who are out of work are expected to spend
it. We took a decision that we should strike a fair balance between
those two groups. Beyond that, we have set out for the Committee where
we intend the capital limit starting point to be. That decision has
been made for a variety of reasons, but in particular because it is the
most balanced and affordable option.

Column number: 214

The right hon.
Member for East Ham proposed to raise that limit by £10,000 per
year cumulatively, because a person is entitled to put £10,000 a
year into an individual savings account—so it is £10,000
for the first year, £20,000 for the second, £30,000 for
the third, and so on. The cost of doing that would be in excess of
£100 million a year cumulatively, because it
increases year by year. My question to him and his colleagues is: where
is the money coming from? The one piece missing from his remarks was
how he would fund such a significant variation to our costly proposals.
Perhaps he would like to explain that.

Stephen
Timms (East Ham) (Lab): Of course. Perhaps it is worth
making the point that tax credits currently do not have the cap that
the Minister proposes. We are talking not about hundreds of thousands
of pounds, but about £16,000. The Minister said that it would be
easy in future to limit the applicability of the cap. Will he say a
little more about how he envisages that working? Clause 4(2)
states:

“Regulations
may provide for exceptions to the requirement to meet any of the basic
conditions”.

There
is no such possibility of exceptions to meet the financial conditions.
How does he see the “prescribed part”, under clause
5(1)(a),
working?

Chris
Grayling: Clause 5(1)(a) clearly allows the Government to
set a capital limit and to decide what that could be—it could be
1p or £1 million. We happen to have formed the view that
£16,000 is an appropriate level for it to be set at. If we
remain in office, future regulations will set it at that level. There
may be future scope to vary that if the economy is doing particularly
well. We are now dealing with a rather large financial overhang, which
means we have to find the best balance between what we would like to do
and what is achievable.

Stephen
Timms: The question is whether the savings of people on
low incomes are the savings that should be plundered to plug the
deficit. How does the Minister envisage the “prescribed
part”, under clause 5(1)(a), working? Will there be exceptions
to what can be included in the capital limit and, if so, what will they
be?

Chris
Grayling: At the moment, we intend simply to set a
£16,000 capital limit. Our view is that, where people are
receiving money from the state in support, they are on relatively low
incomes. The main focus of the universal credit structure is to lift
people out of poverty. We think that £16,000 is an appropriate
level at which to set a capital limit. I fully accept that that might
be a point of difference between us. Some of the proposals of the right
hon. Member for East Ham, for example a higher threshold or a provision
that allows money to be put into individual savings accounts, would
benefit people at the higher, rather than the lower, end of the scale.
Likewise, in relation to mini-jobs, the people getting those first few
hours of employment will not have £16,000 in the bank. Our
priority is to help those people to get off benefits who have struggled
for a long time, within the system, to get back into
work.

Stephen
Timms: If somebody receives a compensation payment of
£15,000 or £20,000 as a result of an accident, will that
count towards the capital limit?

Column number: 215

Chris
Grayling: We shall certainly be exploring some of the more
specialised areas, especially for service people. Absolute decisions
have not been taken, but it remains my view that if somebody has
received a sum of compensation to tide them over a difficult period,
that will inevitably have an impact on the amount of support they
receive from the state. The state’s job is to support people
when they do not have other resources. The Government have been left
with the biggest deficit in our peacetime history, so it is difficult
to deliver all options for all people. We have to ask ourselves why we
have that dilemma. The answer is sitting opposite
us.

Priti
Patel (Witham) (Con): Will my right hon. Friend confirm
that the proposals will ensure that money goes to those who genuinely
need it? Targeted resources will go to those people, as opposed to the
disproportionate spread that we have seen thus
far.

Chris
Grayling: My hon. Friend is absolutely right. The focus of
the universal credit is on lifting people out of poverty. We have to
achieve the right balance between people further up the income scale
and those further down the income scale. We think we have got it about
right. If the Opposition do not agree, which they are absolutely at
liberty to do, they can bring forward their own policies and
approaches. The Committee would benefit from an explanation from them
of how a multi-hundred-million-pound spending commitment would be
funded. I notice that we have not yet been given information on
that.

Julie
Elliott (Sunderland Central) (Lab): I want to go back to
the point the Minister mentioned a few moments ago regarding a payment
for, for example, an industrial injury or accident—he mentioned
service people. That money is usually awarded to pay for ongoing
problems as a result of an injury above and beyond someone’s
daily normal living costs. If someone has a disability or some ongoing
problem, that money is intended to pay for those extra things. It is
not an award to cover basic living costs. What is the Minister’s
view on
that?

Chris
Grayling: For a typical claimant, personal injury payments
are ignored for 52 weeks and are then ignored indefinitely if they are
put into a trust fund, so there are some provisions on that. That takes
me back to the original point I made this morning. The whole benefit of
structuring the measure in such a way is that it offers future
flexibility. If a new Government or a change of policy from an existing
Government requires a change, or new circumstances arise that
necessitate a change, that can be made quickly and easily without going
through the extensive process of introducing primary
legislation.

We are talking
about amending a flexible piece of legislation that would allow the
current or a future Government to adapt the rules according to
circumstances to place a specific element within them. That just does
not make sense. If the Opposition win a future election, they will have
all the flexibility that they need to implement the policies that they
are articulating. However, they have not explained to us where the
money will come from to do so. Unless and until they explain where the
funds will come from—I suspect that we will return to that issue
numerous times during debate on the Bill—they

Column number: 216

cannot expect the Government to take them seriously. I urge the
Committee to reject the amendment, but I am happy to answer any
specific further questions from Opposition Members. Perhaps they would
like to explain where the money will come
from.

Sheila
Gilmore (Edinburgh East) (Lab): What we are seeing are
fundamental differences of opinion about how to structure a welfare
state and social security, and what kinds of contribution we want.
Those matters are fundamental, and I suspect that even the Bill does
not deal with them entirely. The emphasis in the Bill is on creating a
system to deal with the poor, whereas the tax credit system set up by
the Labour Government enabled people to work, better themselves and
improve their position.

The clause
represents a fundamental difference in approach; this is not just a
regularising proposal. Tax credits did not take capital into account,
other than through a reference to income that could be derived from it.
Some Government Members have said things like, “Are we
suggesting that somebody with £500,000 should get tax
credits?” Under the tax credit system, that did not happen,
because the income generated from £500,000 would have rendered
someone ineligible, so we can ignore such comments
altogether.

However, a lot
of people might find themselves in the position of having some savings
or capital. Personally, I think that we are extremely harsh on such
people who are on out-of-work benefits. Ideally, one would want to
address that. Interestingly, the Centre for Social Justice has also
said that it is not desirable to be so harsh on people who have savings
when they are out of work. Effectively, people will be made to use up
those savings if they are on out-of-work benefits for a prolonged
period, whether due to ill health or for other
reasons.

Sarah
Newton (Truro and Falmouth) (Con): Does the hon. Lady
agree that the Bill is framework legislation? As we reduce the deficit,
the economy grows and there is more wealth in the country, the
parameters can be changed.

Sheila
Gilmore: I am afraid I do not entirely agree, for several
reasons. First, I am not convinced that the current Government’s
policies will have the suggested impact on the deficit. Secondly, this
particular approach to social security law goes beyond simply dealing
with a difficult financial situation. It expresses a view of how we
provide social security to our community and whether welfare is
something for others—the poor—in which everybody else has
no interest. As Richard Titmuss said in the 1950s, and probably several
times in his working life, services for the poor tend to be poor
services. That is not an approach that we
endorse.

George
Hollingbery (Meon Valley) (Con): The hon. Lady is making
the perfectly sensible and reasonable point that the existing system
spreads welfare up the income scale and makes welfare available to a
great many people. As I think I have said, this Government heard
evidence from Professor Gregg that a decision must be made about
whether to focus our cash on a vulnerable group who find it difficult
to get back into work or spread it up the income scale. This Government

Column number: 217

have decided that the cliff edge at 16 hours that prevents people from
getting back into work is more important. Does she
disagree?

Sheila
Gilmore: The question of a cliff edge and the 16 hours is
not the matter before us. No doubt we will come to it.

I am
particularly interested in the issue of capital, for numerous reasons.
As a family lawyer, I dealt with many people of both
genders—although women tend to find themselves in the most
difficult financial positions after separation or divorce—whose
former matrimonial home had been sold and who had some capital or
savings left over. If they could not work at all and their capital was
over the capital limit entirely, it is true that they immediately
became disentitled to receive what was then primarily income support
for people in such a position. If their capital was between the lower
and upper limits, because there always have been two different limits
for out-of-work benefits, they would find themselves having some of
that capital taken into account, thereby losing some benefit. What then
happened was that for people in that position, the share of what had
been built up during that marriage was swiftly eroded, because they had
to use
it.

4.15
pm

Ian
Swales (Redcar) (LD): The hon. Lady makes a powerful
argument on people who are jobless. This amendment is for people in
work. The Opposition are fighting for people who are in work. Is she
arguing that that should be changed, so that more help is given to
those who are out of
work?

Sheila
Gilmore: As I have made clear, ideally, we should address
that in the future. I gave that example because, where people were out
of work and in that position, and were unable to find work and found it
difficult to find work, that was what happened. It eroded that capital.
The change in universal credit and the fact that, for the first time,
these in-work benefits will have this capital limit applied, will mean
that the same thing will happen, even if they are working and trying to
improve their position. Any capital that they get out of a settlement
will be set against any entitlement that they would otherwise have
had.

As I said
earlier, one of the refreshing things about the whole tax credit system
was the way it enabled many of my clients, who were separated and had
become single parents bringing up children, to get into work. If they
had savings from their divorce settlement, it would not be rapidly
eroded, which is what happened to other people. In that situation, many
people will have that sum of money after separation, but it is often
not enough to—initially at least—purchase a new home, for
example, because that is difficult to do, particularly for those on
lower earnings. Many of my clients could not immediately, from divorce,
go out and buy another house with their share of the value of the
matrimonial home, although they hoped to do so without waiting too
long. The Bill says that a person in that situation would not get the
additional help that others would, because of those savings. It marks a
significant change to how in-work benefits are dealt with.

Column number: 218

I have heard
Government Members asking, “What would you do? Where would you
find the money?” There seems to be a great deal of discussion
about cost. The number of people in that position is not as large as we
think, but particular groups, such as those who have just come out of
separation and divorce, are a niche, but important, group. They want to
be able to better themselves and their families. They have achieved a
settlement, mainly through negotiation, that was meant to help them set
up. It was their share of result of the marriage or relationship that
they had been in. Not to disregard that in this situation is to
reproduce the problems that happened for those who are out of work. I
accept that it has happened with out-of-work benefits for a long
time—that was harsh. I was pleased when I could advise those who
might be in that position not to go on to out-of-work benefits, because
they were able to work through the tax credit system. They could then
also preserve the settlement that they had often fought so hard to
achieve. That is another group, other than those that have already been
mentioned, that would be substantially disadvantaged by the
change.

The change is
being adopted by the Government for what they think are good reasons,
either to equalise those who are out of and in work—although it
is equalising downwards, in that we take the lower way of dealing with
things—or because of the deficit, where they say there is
nothing further we can do about it. Let us acknowledge that it is a
change in how we deal with things and let us acknowledge that there are
people who will lose out because of this. For all the statements that
people will not lose out, those who are in the group that I have
mentioned clearly will, relative to their position now, when they shift
from tax credit, which, of course, has already been substantially
reduced. Some of the figures that were mentioned by the Government have
already been changed. Many people are already losing tax credits that
they had previously, but that will happen
more.

If
we want people to get on, one of the ways of getting on is to have some
ability to save. Hon. Members have waxed lyrical about the savings
habit, so I find it strange that those who think that it is a good
thing to encourage people to save will not make arrangements such that
they can do
so.

Only
last week, at Treasury questions, we were told that the Government are
minded to set up a new scheme to replace the child trust fund for
children in care and that that scheme would start paying money into an
account for those young people. When young people reached the age when
they would be able to have that money in their hands, they perhaps
would not go to college but would get employment. They might well be in
the position where the Government have given with one hand and taken
away with the other, because those young people would not be eligible
for benefits, even if they were on low
earnings.

Guto
Bebb (Aberconwy) (Con): I have listened to the hon. Lady
with a great deal of patience. On Friday, I was at the launch of the
North Wales Credit Union, which supports people who want to save. I was
proud to be associated with the event. The average savings account in
that credit union is about £1,600. I simply do not recognise the
argument that she is making about the disincentive for people to save
when they need to support

Column number: 219

themselves. Most of the people who are saving with that credit union
would be absolutely delighted to have £16,000 in a bank
account.

Sheila
Gilmore: I am sure they would, but, again, we have to
think about what we are trying to do. The view is that this is about
providing for poor people who will not be able to save and will never
have any aspiration to get above, for example,
£6,000.

John
Glen (Salisbury) (Con): It is unfortunate that the hon.
Lady is trying to characterise the opinion of Government Members as an
ideological case against the poor. This is, in fact, a matter of making
responsible changes to Government policy according to what the country
can afford, while leaving reasonable incentives for those people who
require assistance from the state. I believe that most people
understand that, if they have some savings, they have a responsibility
to use them to provide for themselves before they look to the state.
That is a reasonable principle, and it does not stop those who really
need assistance getting
it.

Sheila
Gilmore: If we want to encourage people to build up to a
position where they can provide for themselves, we should not
discourage them from
saving.

There
is a question about whether we are discussing the poorest—it
appears that Government Members feel that such people would never be
able to save very much anyway, and therefore this will never affect
them—or whether we are dealing with people who become eligible
for support through a range of circumstances. My experience as a family
lawyer was that, after separation and divorce, many people became much
poorer than they had been previously. All the evidence is that that
happens predominantly to women. The home that they previously shared
has to be sold, and they are now likely have low earnings but also an
amount of savings or capital. I do not think that they should have to
lose that because they cannot get in-work
support.

We
have heard that loss of universal credit will result in the loss of the
whole bundle of benefits: housing support, child care support and so
on. I do not think that that is necessarily what Government Members
intended, but I am not sure whether that group was in their mind when
they were considering their
proposals.

This
substantial change of tack on in-work support will act as a
disincentive to people to take the step that could lift them even
further if they could have something in reserve. That is the other
issue that comes up. I was very disappointed when I heard about the
framework for universal credit and that this change was being made. We
are stepping back from the previously existing
situation.

If
Government Members want to debate the whole of economic policy and how
we would do things differently, we could have that discussion. We are
being told at every turn, “You cannot do that because of the
deficit.”

John
Glen: All we are hoping for is that if an alternative is
forthcoming from the Opposition, they will actually cost it. If we are
in the serious business of accountable government, we need to
understand how much things cost. That was part of the problem with the
previous Government, and we have to pick up the
pieces.

Column number: 220

Sheila
Gilmore: We will have to have the debate about where we
have come from.

The
Chair: Order. Not in this
Committee.

Sheila
Gilmore: It is relevant. The previous Government’s
spending too much was not, in fact, the reason for the financial crisis
that has affected this and other countries, but I shall not go down
that road, Mr
Gray.

Sarah
Newton: I should like to take us back to the amendment and
pick up on a comment that the hon. Lady made about looked-after
children and the replacement for the child trust fund. That fund, if it
had continued, would have provided a capital sum well short of
£16,000. This Government have made firm commitments to
looked-after children. We heard a statement from the Dispatch Box about
plans for an ISA. It is a real misrepresentation of our commitment to
this particularly vulnerable group to say that the capital that we will
help them to accumulate would somehow be eroded by this
measure.

Sheila
Gilmore: I am not suggesting that there is not a
commitment. I was glad to hear about it, although I would have
preferred that the child trust fund had not been abolished in the first
place. Obviously, we had some considerable discussion about that in a
previous Committee. Again, Mr Gray, I will not go back to
it.

The
point I was making was that sometimes Government policies conflict with
each other. A genuine commitment to help the group of young people in
care may actually conflict with this policy. Sometimes we have to look
at whether the whole thing holds together, and whether it holds
together
well.

This
proposal is a step backwards from the kind of policy that we were
trying to achieve for people who were in work. I do not think that it
is necessary to take this step simply because it appears to make the
whole thing more consistent. Just because one group—those who
are out of work—does not have something does not necessarily
mean that those in work should not. I urge support for the amendment.
It does not encompass all the things that I would like in terms of help
for people who are in work, but it goes some way towards doing
that.

The
Chair: Order. Before I call the next speaker, it may be
helpful to the Committee if I comment briefly on a couple of things.
First, I am the only person in this room whom Members should address as
“you”, if that is all right with the Committee. I hope
you do not mind my reminding you of that. Secondly, interventions on
other people’s speeches should be brief and to the point;
otherwise, it will take a long time to get through this large
Bill.

Kate
Green (Stretford and Urmston) (Lab): I am grateful for
your guidance, Mr Gray. Clearly, I shall speak in support of the
amendment. I shall concentrate my few remarks—you will be glad
to hear that, Mr Gray—on some of the areas on which I
hope we might get some clarification from the Minister. I am not
absolutely clear about some things.

Column number: 221

I regret what I
see as a retrograde step. Whatever the rights or wrongs are around
expecting people who are out of work to dip into their savings in tough
times, we have in the past been able to ensure through the tax credit
rules that at least those who are in work are able to hang on to their
savings and therefore be rewarded for the effort that they have made to
save. It is a pity to see that being
undone.

I
understand the questions that the Minister and other Government Members
are raising about the cost, but I must point out that there are some
real inconsistencies over where we expect the taxpayer to fund people
in work in certain circumstances when they are not in receipt of
universal credit and where we are now no longer prepared to use
taxpayers’ subsidy to support them when they are in receipt of
universal
credit.

4.30
pm

I
would be grateful if the Minister could comment on two particular
areas. The first is in relation to child care. It is likely that people
who have high child care costs, are receiving help under the current
tax credit system and have savings are likely to be left in a
particularly disadvantaged position as a result of this measure. All of
the money that they currently receive to support them with child care
costs could be removed.

Such a
situation contrasts with the support that we are willing to give people
in paid employment who are not currently in receipt of working tax
credit support and who, in future, could be in receipt of universal
credit. They receive support through the subsidy that is available via
the employer voucher scheme, which I ran when I was an employer and
which I know is appreciated by middle income families who are not on
in-work benefits and who, as I understand it, will continue to benefit
in the future.

There seems to
be an anomaly here. People on the in-work universal credit are no
longer likely to get help with child care costs whereas other families
who are not much better off and who are not in receipt of that in-work
support will continue to enjoy the support through the tax
system.

Secondly, I
want to know how the calculation of savings will be made in the context
of the universal credit being a household benefit. I know that we are
specifically discussing the clause in relation to the single claimant,
but the amendments in the group refer to both single and joint
claimants together. As for the £16,000 savings limit, will the
Minister confirm whether it is £16,000 per member of a
household, £16,000 per household, or some other amount per
household if the household consists of more than one person?

In that
context, will the Minister assure me—I am sure that he will want
to give me this assurance—that the money that families have
invested in the new junior ISA scheme, the details of which I am
unfamiliar with, will not count as part of the household savings? It
would seem to be quite invidious if savings that were being set aside
for children were then calculated as part of their parents’
assets. Families would then be at risk of seeing the household income
depleted as a result. I look forward to the Minister’s comments
on that.

Column number: 222

I remind
Government Members that we are talking about a sliding scale here. We
are not just talking about people with £16,000 or more. As Mike
Brewer pointed out in his evidence, the bigger issue is the people with
savings well below £16,000 but above £6,000, and he
suggested there might be quite a substantial number of them. We will
see a lot of people potentially affected by this change in policy,
which has left the Opposition very confused. We are finding it
difficult to make any sort of assessment of the cost of the
proposal.

In conclusion,
we again seem to be in the squeezed middle territory. It is the
families on modest incomes with modest savings who are being
particularly badly hit by this measure. I am surprised that such a
proposal is coming from Government Members, who are very concerned
about the position of the squeezed middle population. I would very much
like to hear the Minister’s comments on
that.

Chris
Grayling: We are in an unusual reverse of position, are we
not? What we are hearing this afternoon is the contrast between a plan
put forward by a Government who have taken a conscious decision to
concentrate resource on those at the lower end of the income scale and
an Opposition, who, when they were in power, invested tax credit money
in those at the upper end of the income scale. That is a real
turnaround in the way that politics used to be. In my own personal
view, it is absolutely where we should be. To me, the priority is to
help those on the lowest income into work. It is about helping people
who are scraping a living or who are on benefits to move into the work
place and advance, and it is not about concentrating our resources on
those who are further up the scale. I am surprised that the Opposition
have taken that view. If they had come forward with a proposal that
strengthened the amount of money going to people at the bottom end of
the scale and that profited them, we might have given them a fairer
hearing. However, these are people who have got savings; they are not
the people on the lowest incomes. The truth is that we have to take our
decisions. For all the Opposition’s comments, the truth is that,
in the immortal words of the former Chief Secretary, there was no money
left. This country has a massive financial challenge and a huge
structural deficit, and we have had to take some tough decisions. The
mix of our universal credit proposals strike the right balance for
these difficult
times.

The
nonsense of all this—we have been debating the matter for an
hour and a half—is that the Bill allows the Opposition, if they
can convince the electorate to enable them to return to office, to do
exactly what they have proposed. Paragraph 4(1)(a) of schedule
1—page 101 of the Bill, if anyone wants to find it
quickly—specifically allows for regulations to provide for a
calculation or estimation of capital that could ignore money in an ISA
if a future Government so wished. The Bill is a framework that would
allow the Opposition when in government to do exactly what the
amendments request.

Stephen
Timms: Is there provision in the Bill to treat people who
are in work differently from those who are out of work in that respect?
I could not find that in the Bill.

Column number: 223

Chris
Grayling: My understanding is that the Bill would allow,
in theory, a future Administration to do that. It is not our intention
to do that, but the means of assessing a claimant’s capital
gives significant flexibility to a future Administration to take policy
decisions about different aspects of the universal credit and about
different entitlements. There is nothing in our intent that would
return to that situation, but I am not aware of anything in theory in
the Bill that would prevent that from
happening.

Stephen
Timms: I appreciate that the Minister may need a moment or
two to reflect on this, but I cannot see any basis in clause 5 for
distinguishing between those who are in work and those who are not in
work. If there is such provision elsewhere, I would be interested to
know about
it.

Chris
Grayling: If the right hon. Gentleman looks at paragraph
4(3) of schedule 1, on page 102, he will see that there is a whole
variety of flexibility for a future Administration. Although I am not a
lawyer as such, I believe that all the flexibilities there would allow
for different cases. I emphasise that that is not something we intend
to do, and I do not believe that it is something that any
Administration should seek to do. It is wrong that we put different
rules in place for those people who are out of work and for those who
are in work. One of the benefits of this change will be to end that
situation. We have all the flexibilities that we
need.

On
a couple of points made by Opposition Members, first, the
£16,000 is a household total; it is not an individual total. In
practice, the average working-age family has savings of £300.
The difference between the savings of a single person and a couple is
unlikely to have a significant impact on the overall calculations of
the universal credit.

On the junior
ISA, my belief is that an investment held genuinely in the name of a
child is not affected by what would be a joint claim between two
adults. However, I will check at the end of the debate, and if I am not
correct, I will write to the hon. Member for Stretford and Urmston to
confirm the position. Certainly, it is not our intention that assets
held in the name of a child should be counted as part of the routine
calculations of the payments made to their parents. Those were the key
points
raised.

I
listened carefully to the speech made by the hon. Member for Edinburgh
East. Again, such flexibility is in the Bill, which does not need to be
amended to include those provisions. A future Administration will have
all the flexibility that they need. We are taking the tough decisions
now based on the tough circumstances that we inherited. If the Labour
party can persuade the electorate in the future that it has the money
to do some of the things that it claims to be able to do, that is its
concern. For now, we are going to do what is best and right and in the
country’s
interests.

Stephen
Timms: We have had an interesting debate, and I am
grateful to my hon. Friends for their contributions. First, I shall
pick up the question of cost. As I said before lunch, on 28 February,
the Minister answered a question from me. He said that the cost of the
change would be £70 million, but he is now saying that it is

Column number: 224

actually more than £100 million—although I do not think
that he gave a precise figure. Certainly, his answer to my hon. Friend
the Member for Glasgow North East (Mr Bain) on 22 March, just last
week, seemed to imply a larger cost than the figure he is now
giving—100,000 people at £2,700 comes to more
than—

Chris
Grayling: Does the right hon. Gentleman recognise that he
must take three things into account in the figures that he is using? He
needs to combine the figures for those both in and out of work. For
those in and out of work, an increase to £20,000 costs
£30 million, and an increase to £25,000 costs £105
million. The issue for existing claimants must be adjusted to take
transitional arrangements into
account.

Stephen
Timms: Yes, I certainly am taking account of
that. I shall read out my question, and his answer on 28 February. The
question
was:

“if
he will estimate the cost to the Exchequer of exempting from the
£16,000 saving limit for universal credit people who
are…in
work”.

His
answer
was:

“The
estimated annual cost to the Exchequer of exempting from the
£16,000 savings limit for Universal Credit for people
who…are in work is around £70
million”.—[Official Report, 28 February
2011; Vol. 524, c.
210W.]

Chris
Grayling: That is what I
said.

Stephen
Timms: The Minister said earlier that the cost would be in
excess of £100
million.

Chris
Grayling: It is indeed in excess of £100 million
when account is taken of those in work and those out of
work.

Stephen
Timms:The amendment specifies people who are in
work. That is what I asked the Minister about, and he replied on 28
February when he assigned a cost of £70 million. I think he is
now saying that the amendment would not cost more than £70
million. Indeed, it would cost rather less than that because some
people would not have all their savings in an
ISA.

Chris
Grayling: If I have misunderstood the right hon.
Gentleman, I apologise. Our intention is to have the same rules for
those both in and out of work. He is obviously arguing for something
different.

Stephen
Timms: The amendment specifies people who are in work, and
that is what we have been debating. I think the Minister is confirming
that the cost would be, as he said on 28 February, of the order of
£70
million.

I
draw the Minister’s attention, as I am sure his hon. Friend the
Member for Dover would do if he were here, to the fact that there seems
to be a conflict with his answer to my hon. Friend the Member for
Glasgow North East last week, which spoke in terms of 100,000 people
losing as a result of the change—and therefore presumably people
who are in work—and that the average amount they would lose
would be around £2,700 a year. However, he is
helpfully standing by the figure that he gave on 28 February—a
cost of £70 million a year as a result of the amendment. It
would not accumulate

Column number: 225

and become a large sum in future, as he suggested earlier, but would
remain £70 million. If he subsequently decides that that figure
is incorrect, I am sure that he will correct the
record.

Chris
Grayling: It is important to understand that putting money
in an ISA can be done year by year, and the rules allow people to have
£10,000 in an ISA in year one, £20,000 in year two,
£30,000 in year three and £40,000 in year four. There is
no cap in the amendment, unless I have misunderstood
him.

Stephen
Timms: Let me again read to him the question that he
answered on 28 February. I asked

“if he will
estimate the cost to the Exchequer of exempting from the £16,000
saving limit for universal credit people who are…in
work”.—[Official Report, 28 February 2011; Vol.
524, c.
210W.]

That was
all. I did not limit what was being exempted to the contents of an ISA.
My question was simply that if those who were in work were exempted
entirely from the cap, what would the cost be? The answer was
£70 million a
year.

Ian
Swales:I may be misreading the amendment, but in
terms of how the savings limit would be applied, my hon. Friend the
Minister is indicating that the effect would be that the limit would
increase every year by people putting more money into ISAs. The limit
on the amount of capital that people were allowed to have would
increase more and more. My hon. Friend was answering a different
question.

Stephen
Timms: No. First, I understand the hon. Gentleman’s
point about the limit becoming more and more each year, but my question
to the Minister was what would be the cost of exempting entirely from
the £16,000 limit those who are in
work.

4.45
pm

Ian
Swales: That is not what the amendment
says.

Stephen
Timms: I am sorry. The hon. Gentleman is right. The
question that I asked was what would the cost be to the Exchequer of
exempting entirely from the saving limit of £16,000
those who are in work, and the Minister’s answer was £70
million. I applaud the hon. Gentleman—he is right. The import of
what he is saying is that the cost would be rather less than
£70 million because of the slightly restricted form
that I have proposed in the amendment. What I want to establish is that
the cost of the amendment could not be more than £70
million, if the Minister’s answer to my question was
correct.

Chris
Grayling: I think the reason for the right hon.
Gentleman’s confusion is that the answer that I gave him,
£70 million, was about a snapshot in time. What he is proposing
is based on current levels of savings and a dynamic situation of
increased provision year by year. That is a different potential cost to
the taxpayer.

Column number: 226

Stephen
Timms: I am not sure if I am confused. Let me read the
rest of the Minister’s answer. I asked him two questions: what
the cost was of exempting first, people who are in work, and secondly,
those who are working for at least 16 hours a week. He said that the
estimated annual cost to the Exchequer for both cases is “around
£70 million”. He
continued:

“Analysis
presents the long-run costs which assume that universal credit has been
fully implemented and there is no longer any transitional protection in
the system.”—[Official Report, 28 February 2011;
Vol. 524, c.
210W.]

I
respectfully suggest to him that perhaps it is he who is confused
rather than me. If his answer to me was mistaken, which it may have
been—there is some evidence of that, as the hon. Member for
Dover was suggesting before lunch—he needs to correct it on the
record. In any case, my right hon. Friend the shadow Chancellor will be
assuming that the answer that the Minister gave to me was
correct.

I would like
to comment on one or two points that other Government Members made in
their interventions. The hon. Member for Truro and Falmouth suggested
that we ought to see this as a framework within which policy may be
made, which is true to an extent. I refer her to the Bill. Clause 5 on
financial conditions, a whole clause in primary legislation, is given
over specifically to ensure that if someone has more than a certain
amount of capital, they will get nothing at all under universal
credit.

George
Hollingbery: My interpretation of clause 5 does not say
that at all. The clause makes provision such that that decision is able
to be made, but it does not prescribe the amount and therefore does not
put a limit.

Stephen
Timms: No, of course it does not set the amount; I am not
suggesting that it does. My point is that after four clauses about
entitlement to universal credit, which are the fundamental building
blocks of the new benefit, an entire clause—clause 5—is
given over to ensuring that people with more than a prescribed amount
of capital do not get anything at all. That is a pretty fundamental
element in the design of the universal credit.

That is not to
criticise the Government unduly, but the Committee needs to acknowledge
that that is not an incidental matter, but a key building block in the
Government’s thinking of how the universal credit will operate.
I understand from one or two of the comments that Government Members
have made that they feel a bit uncomfortable too, and they are right to
do so. It is clearly a key part of the design of universal credit, as
the Bill presents it to
us.

George
Hollingbery: On that basis, why does the right hon.
Gentleman not propose deleting the entire clause, rather than seeking
to prescribe it in a particular
way?

Stephen
Timms: As I said, the amendment is a modest
proposal—that those who make a serious commitment to save, by
placing savings in an individual savings account or some other
prescribed account, and are in work should be exempted from the
£16,000 limit.

Column number: 227

George
Hollingbery: Therefore, he agrees in principle with the
idea of a capital
cap.

Stephen
Timms: I was a member of the previous Government for 12
years, as has been pointed out, and took several welfare reform Bills
through the House, and we never removed the existing capital
cap.

The
important point that I am making to the Committee is that, if we are to
encourage work and aspiration, those who are in work and have started
their journey should find it possible to save and to build up financial
assets. They should not be in a position where, if they start to do
that, they suddenly have support taken away from them. That is the
danger that the Centre for Social Justice so powerfully spelled out in
its report. The Committee will want to weigh that danger heavily in
considering whether, in the design of the universal credit, we should
have such a punitive regime for people who are saving and receiving
universal credit on the basis of low
income.

I
think I heard the Minister right, but perhaps he will correct me if I
did not, that he said that the universal credit is designed for people
who are “scraping a living”. Before lunch, we spoke about
the stigma attached to receiving benefits and about how tax credits
have successfully managed to avoid that. If the Minister’s
message is that it is all about people who are “scraping a
living”, that is an unfortunate phrase to
use.

The
Minister said that we should give help only to those on the lowest
income, but the amendment is not about people’s income; it is
about their savings. He will penalise people who, for a variety of
reasons, have managed to put together some savings. I always understood
that Government Members believe that having savings is a good thing.
The clause will introduce a very severe penalty for anyone who has put
together such
savings.

Chris
Grayling: First, does the right hon. Gentleman accept that
the current universal credit proposals will benefit most the people on
the lowest incomes? Secondly—I have asked this often this
afternoon and we have still heard no answer—whatever the amount
of money that he might care to decide would pay for his amendment, will
he tell us how it would be paid
for?

Stephen
Timms: For the answer to that question, the Minister will
need to wait for the first Budget of a new Labour Government or
possibly the election manifesto preceding it. It is regrettable that
people in work and wanting to save will have to wait for the election
of such a Government before a fair regime is put in
place.

Kate
Green: Does my right hon. Friend not agree that it is a
strange set of spending priorities that seeks to penalise such low-paid
working people, while tax advantages continue for higher-rate taxpayers
with
savings?

Stephen
Timms: Absolutely right—my hon. Friend makes that
point very well. One might contrast the complete failure of the new
Government to do anything about the enormous bonuses paid to bankers,
who will be able to enjoy those benefits, and yet to take significant
sums from people on low incomes who are putting together some
savings.

Column number: 228

The hon. Member
for Salisbury suggested that we were accusing Government Members of
making an ideological attack on the poor, which I think was the
expression that he used. I simply draw his attention to the arguments
of the Centre for Social Justice, which I think he would want to take
seriously. Instead of accepting those arguments, the Government have
decided to extend the savings cap to a very large number of people who
have never had a savings cap before, or certainly not since the
introduction of tax credits. I hope that he and other Government
Members will weigh seriously the points that the Centre for Social
Justice makes about the damage that such a penalty for saving will
create.

John
Glen: Another issue that the Centre for Social Justice
will want to bear in mind with regard to legislation is the need to
take responsibility for one’s circumstances and not to look to
the state as the first port of call when one has resources. It is keen
to develop that clear principle, which runs through the
Bill.

Stephen
Timms: But the argument that the “Dynamic
Benefits” report spells out is, how can people take
responsibility if as soon as they start to put some savings together
their income is dramatically reduced? That is what the clause will do
to people who are saving, and the hon. Gentleman intervened before to
make the point that their savings will not last very long. That is
absolutely right: people will suddenly find themselves back at square
one, when surely we should put in place an arrangement that allows
people to
progress.

John
Glen: As has been mentioned, the Bill will provide a
framework in which the amounts can be changed over time, but the
underlying issue that has not been addressed by the Opposition is
affordability. We cannot afford to pay for everything; we must
prioritise appropriately. Although the incentives are perhaps not as
great as everyone would like, the Bill will provide room for movement
over
time.

Stephen
Timms: No, it is not a matter of affordability; it is a
matter of priorities. The question is whether we make it a priority
that people should be encouraged to save, or will we prevail over an
arrangement that will penalise people who are saving to a very
significant extent? That is where the Bill’s priorities are
wrong.

Guto
Bebb: The right hon. Gentleman mentions that this is a
question of priorities. Can he confirm that, even if the amendment is
accepted, it is still a fact that anyone who is currently unemployed,
which I suspect is the largest calamity that anyone can face, would
forgo their benefits if they had savings over
£16,000?

Stephen
Timms: That has always been the case, and I have made the
point on a number of occasions. Throughout the previous
Government’s term, there continued to be a savings cap in
means-tested out-of-work benefits. In 2006, the cap was
doubled—it had been £8,000—but it was never
abolished, and I am not proposing that it should be. My point with the
amendment is that people on modest incomes should be able to save, and
the clause will prevent them from doing so in a pretty draconian
way.

Column number: 229

Ian
Swales: Returning to funding, will the cost of the right
hon. Gentleman’s proposal be covered by
savings that he will suggest elsewhere in the Bill, or will it be a
spending commitment outside the Bill? If so, given that the Government
propose that we will still be borrowing money in five years’
time and that the Labour party proposes that we will probably do so for
10 years, his proposal will be funded by UK borrowing. Does he think
that that is the right way to
go?

Stephen
Timms: The hon. Gentleman will have to wait for a future
Labour Budget to get the full answer to his question. However, I will
conclude with the point that we should have an arrangement that
encourages saving rather than penalises it, particularly with a reform
that could set the shape of the UK welfare system for some time. That
is particularly true for people in work who want to progress and build
a better future for themselves and their
families.

5
pm

Anas
Sarwar (Glasgow Central) (Lab): Does my right hon. Friend
agree that the reforms should promote aspiration? Aspiration should be
a central plank of the Bill. The Centre for Social Justice said that a
savings penalty created a disincentive to save and was an unfair
penalty on those who have saved. Deven Ghelani, who gave evidence to us
last week,
said:

“It
is fundamentally a disincentive to save. I think that the savings limit
for people who are not working and are on benefits has been
£16,000
for”—

he
did not know how long but thought it was a good many years. He
continued:

“By
extending that to people who are working, people who get close to that
threshold might suddenly realise that it does not pay to save and that
there are perhaps other things that they should be doing with the
money, whereas saving is in itself a protection against
dependency.”––[Official Report, Welfare
Reform Public Bill Committee, 22 March 2011; c. 18,
Q23.]

I would
expect the Government to celebrate that
fact.

Stephen
Timms: Mr Ghelani made that point very eloquently. Indeed,
I would have also thought that his comments had greater resonance.
Certainly, that perspective is not reflected in the Bill. My hon.
Friend is absolutely right.

Charlie
Elphicke (Dover) (Con): I apologise for not being in my
place earlier; I was detained in the main Chamber presenting a Bill.
Before we adjourned for lunch, we were debating how much the amendment
and the policy would cost. Numbers seemed to vary from £300
million to £500 million. Can the right hon. Gentleman explain
how much it is and whether this is a pledge that a future Labour
Government would enact
immediately?

Stephen
Timms: I am grateful to the hon. Gentleman. I am happy to
rise once again to answer that question. I appreciate that he could not
be here at that point, but let me read again my parliamentary question,
which
was

“To
ask the Secretary of State for Work and Pensions if he will estimate
the cost to the Exchequer of exempting from the £16,000 saving
limit for universal credit people who are… in
work”.

The
reply
was:

“The
estimated annual cost to the Exchequer of exempting from the
£16,000 savings limit for Universal Credit for people who (a)
are in work is around £70 million... Analysis presents the
long-run costs which assume that Universal Credit has been fully

Column number: 230

implemented and there is no longer any transitional protection in the
system.”—[Official Report, 28 February 2011; Vol.
524, c.
210W.]

Before
lunch the hon. Gentleman expressed some scepticism about the accuracy
of the Government’s figures. He might have some grounds for
scepticism, because another answer that the Minister gave to my hon.
Friend the Member for Glasgow North East last week appears to suggest
that the figure might be somewhat larger than that. The answer that I
received on 28 February has not been corrected. The Minister
has reaffirmed it in his answers to me today, so it does appear that
the figure is £70
million.

Charlie
Elphicke: There has been some doubt about the figures, but
the right hon. Gentleman previously quoted the Social Market
Foundation, which said that 100,000 people would lose £2,700 on
average. That amounted to £270 million, before the dynamic
effects of people mass avoiding using ISAs, so the figure is well north
of £300 million. Is he giving a pledge to implement his policy
even if it cost £300 million?

Stephen
Timms: Let me correct the hon. Gentleman first. The
reference to ISAs in the amendment, which was not in the question that
I asked, nor in the analysis carried out by the Social Market
Foundation or anyone else, would limit the cost, not increase it,
because everyone has been considering the long-run cost if there were
no cap at all. The fact that the amendment only deals with savings that
are in ISAs clearly restricts the maximum amount that we could
consider. Even if everyone had piled all their savings immediately into
ISAs, the cost could not be more than £70 million—the
figure elicited by my question on 28 February.

If the
Minister subsequently decides that his figure was incorrect on that
occasion, he will no doubt correct the record. The hon. Gentleman makes
a perfectly fair point. How do we know what the true answer is? I do
not think that we can do any better than to ask the Minister the
question and receive the answer that is on the record. I gather from
the Minister’s nods that he confirms that answer
today.

Clause
6

Restrictions
on
entitlement

The
Chair: With this it will be convenient to discuss
amendment 10, in
clause 6, page 3, line 23, leave
out ‘or
(c)’.

Stephen
Timms: I want to suggest through these amendments that
there should be an entitlement to universal credit as soon as a claim
is made and the entitlement conditions are satisfied. At the moment,
there is a waiting period in some means-tested benefits, but not in
all, so the Government need to decide—this is starting to become
familiar—which of the preceding conditions apply to the new
benefit. There is a choice depending on which of the preceding benefits
we look at, and in universal credit, one will need to be applied
universally. It looks to me as though the Government have chosen the
least favourable option that currently exists and have decided to apply
it universally.

A strong
argument can be made that there ought to be no waiting period for
means-tested support through universal credit and that payments ought
to be payable from the date on which entitlement conditions are
satisfied. An obvious problem with introducing such a waiting period is
the cost of housing. People’s rent does not wait, but if there
is a waiting period, they will get no support for their housing until
that period is over. I hope that the Minister accepts that we should
not be driving people unnecessarily into debt, and that in universal
credit, there really ought not to be a waiting period. I think that I
am right in saying that there is not currently one in housing
benefit.

Chris
Grayling: Let me address the amendments, which seek to
remove the provision for waiting days in universal credit from clause
6. The clause provides for restrictions on entitlement to universal
credit, allowing for regulations to determine circumstances in which
entitlement does not arise. Among other provisions, the clause provides
for an award to begin only after a specified number of days have
elapsed since the date of the claim.

The provision
brings the waiting-days rule from existing out-of-work benefits, and as
the right hon. Gentleman said, that is simply an establishment of the
conventional position for new out-of-work claims. Claimants are
protected by the provision that limits the number of waiting days under
the clause to a maximum of seven days. As an in and out-of-work
benefit, universal credit will require fewer claims as circumstances
change, which is the important point to understand. It will only impact
on absolute, brand-new claims, because when someone is an established
claimant of universal credit, if they move into and out of work, they
will remain on universal credit throughout that process, without making
a new claim.

There is a
practical side to how we must handle things, however. As hon. Members
are aware, there is a significant cost to handling benefit claims. It
has been estimated, for example, that it costs in excess of £40
to

Column number: 232

process a single claim for employment and support allowance, which is
why waiting days are a long-established feature of the benefits system.
They discourage claims from people who know in advance that they are
likely to need support from the taxpayer for only a very short
period.

We are
involving customers and their representatives in the design of the
service. That process is essential to ensure that we build a usable,
efficient service, which delivers on its objectives. It also means that
universal credit delivers substantial savings in the cost of handling a
claim. It is important, however, that we retain the principle of
waiting days to prevent payments for very short periods at the
beginning of an award. That only applies to people who are moving into
and out of eligibility for a very short period, which is what we seek
to address. If a person moves into and out of work in a mini-job, with
the universal credit system as support, they will move into and out of
benefits at the same time.

Stephen
Timms: If I understand correctly how that would work, a
person would have to wait for however many days it is before they
receive any housing benefit. That is a less favourable position than
the existing one, as I understand it, where I do not think that there
is any waiting period for housing benefit. Will the Minister confirm
that? I take the point that there are waiting periods in some
means-tested benefits, but not in housing benefit, where it could be
particularly important.

Chris
Grayling: No, I must correct the right hon. Gentleman. The
rules for housing benefit are slightly different, in that normally a
claim for housing benefit is payable from the start of the week after
the claim is made. In some respects, therefore, a shorter period might
apply if we have, for example, a three-day waiting time rule. Housing
benefit is normally paid from the Monday after the date of the claim,
which means that there could be a wait of up to six days before payment
starts. We think that this is simply a prudent technical measure to
maintain the existing system’s safeguards. We do not believe
that it disadvantages any claimants, but it discourages what
Governments of all persuasions have always sought to discourage, which
is people making very short claims when they literally have a couple of
days between moving out of a well-paid job, then back into a similar
job. That is the sole purpose of the proposal, so I hope that that
gives the right hon. Gentleman sufficient comfort to be able to
withdraw his amendment.

Stephen
Timms: I am grateful to the Minister for his helpful
explanation. It is not my intention to press the amendment to a vote,
so I beg to ask leave to withdraw the amendment.

Amendment,
by leave, withdrawn.

Question
proposed, That the clause stand part of the
Bill.

Stephen
Timms: I want to ask the Minister a question on clause
stand part. I mention in passing this rather nit-picking point, but it
is worth drawing the Committee’s attention to it, because it
could be more significant in the future. The regulations under
subsection (3) were not included in the bundle we were sent last night.
We have two sets of notes on the clause, the first on

Column number: 233

subsection (1)(a) and the second on subsections (1)(b), (1)(c) and (2).
I suspect that we are not missing a great deal, but
it is important that the regulations are provided to the Committee
ahead of each
sitting.

5.15
pm

I
shall also take the opportunity to make a slightly wider point about
regulations. It has been specified that all the regulations with which
we have been provided so far will be subject to the negative procedure,
and later in the Bill it is made clear that everything under this part
is envisaged as going through under the negative procedure. I am
troubled by that because we have not seen all the regulations, and the
Minister has been frank about the fact. The note we received
for this clause says that the timetable for bringing forward the
regulations is 2012, so no one will see the regulations before the end
of the scrutiny of the Bill, either here or in the other place. I would
have thought that certainly some of the regulations ought to be
scrutinised by Members before they are enacted, and I am worried that
the current arrangements do not seem to allow for
that.

Chris
Grayling: First, I apologise to the Committee if the notes
were not there for those particular regulations, and I will ensure that
the situation is remedied, but as the right hon. Gentleman rightly
says, I do not think that there is a lot missing. Subsection (3) refers
to subsections (1)(b) and (1)(c), so there is no separate power in that
respect, but I am sorry that we did not clarify that in the
notes.

Stephen
Timms: I do not think that that is quite right. The first
note that we have refers to subsection (1)(a) and the second refers to
(1)(b), (1)(c) and (2). My point was that there was nothing in respect
of subsection (3), which refers to regulations. We do not have a note
about those
regulations.

Chris
Grayling: I am happy to ensure that that is clarified, but
I think that this is a technical issue rather a substantive missing
block of
regulations.

On
the negative procedure, it is always open to Members to request a
debate. To have the affirmative procedure applying to all regulations
on universal credit would involve putting the right hon. Gentleman into
a Committee on many occasions, whereas I think that he has the judgment
to be able to work out when he wants a debate and when he does not. He
is a knowledgeable figure on these matters and I am happy to trust his
judgment. We think that the negative procedure should apply to much of
the Bill, but there are places where the affirmative procedure will
clearly be
necessary.

We
have already touched on aspects of this, but I just want to clarify
that subsection (1)(a), on the prescribed circumstances, refers very
much to the need to restrict entitlement for specific groups of people,
such as those in prison or children leaving full-time care, when there
is a need to exempt someone from the system. It is used in only a small
number of specialist cases, but I am sure that everyone agrees that we
do not want to pay universal credit to people in jail. The provision is
designed to allow us the flexibility to deal with that kind of
circumstance.

Clause
7

Basis
of
awards

‘(3A)
Regulations shall make provision for universal credit to be payable in
respect of a period shorter than an assessment period at a pro rata
amount, including at a frequency of twice per
month.’.

The
amendment is on an important matter for people who struggle to make
ends meet. It is proposed in universal credit that there be a default
that payments of the credit occur monthly. We argue that there should
be an option of at least fortnightly payment instead, when that will
help. In reflecting on the matter, I have noticed the helpful note
provided by Family Action that I imagine was sent to all Committee
members. It shows the sort of circumstances in which having to wait a
month between payments could cause serious problems. It quotes a Family
Action service user who is already having problems dealing with the
fortnightly payments that are a feature of employment and support
allowance:

“A:
You get your ESA every two weeks, which is
annoying.

Q:
Why is that? How often would you like
it?

A:
Every week. I just feel money coming in every week is just so much more
useful. For people who can’t budget. Because I know how much
money I am supposed to spend every week, but it is very hard for me to
keep it in that. I always forget something.

Q:
Is that to do with your mental health
problem?

A:
It is, unfortunately. One thing with bipolar is a lack of
judgment…I go through phases getting obsessed with buying all
sorts of foods. At one point my husband had to tell me to stop buying
butter because I was buying it every time I went out thinking we were
running out. Because I couldn’t judge how much was being
used.”

The
discussion goes on. That particular person, who receives disability
living allowance,
says:

“The
way it is at the moment, I have ESA every other week. One of the weeks
I do not have ESA, I have the DLA which kind of covers. So three weeks
I have roughly the same amount of money coming in and I have one week
where I am actually £300 short. Which for any normal person it
wouldn’t be a problem because all they would have to do is take
a bit out of those weeks and leave it for the last week. Some months I
am actually quite good and I manage to do it but the next month I
am...you know? And then I get afraid to look at the bank account and
that is when it gets
bad.”

That
is a telling account, and it shows graphically what kinds of problem
people could run into if they have to wait not two weeks, as they do
currently, but a whole month before receiving
payment.

Paul
Uppal (Wolverhampton South West) (Con): About a month ago,
the right hon. Gentleman might have heard Radio 5 Live cover the issue
of budgeting for people who suffer from bipolar disorder. It is a
roller-coaster event. Most of the respondents who rang in specified
that they do not always want money in their pocket; they sometimes want
the discipline to budget. They said that if money was in their pocket
all the time, they would feel the need to spend it, and that if money
was sometimes withheld from them or somebody was responsible for them,
it was actually beneficial in the long run.

Column number: 235

Stephen
Timms: Sadly, I did not hear that particular programme. It
sounds interesting. However, I point out that having to wait an entire
month between payments will be hard, as I think that Ministers probably
recognise. We suggest that we ought to put on the face of the Bill the
ability to have a fortnightly payment. We might want to circumscribe
the circumstances in which that option is available, but it would help
to be explicit, as we are proposing.

Harriett
Baldwin (West Worcestershire) (Con): I accept that
budgeting is difficult for lots of people, whatever the time period.
Did the shadow Minister see the evidence given to the Select Committee
on Work and Pensions by the Department saying that precisely those
points were raised when benefit payments were changed from weekly to
fortnightly, and that those concerns did not
materialise?

Stephen
Timms: I have not seen that evidence, but I am aware that
those concerns were indeed raised when we went from weekly to
fortnightly. My concern is that we are going from fortnightly to
monthly, and for a lot of people, a month is a long time. That can only
accentuate the difficulties. Some people will encounter problems if
they do not get anything at all until the following
month.

Sarah
Newton: I am sure that the right hon. Gentleman is as
concerned as we are about the extent to which people living on low
incomes are financially excluded and not receiving the sort of help
that would help them to tackle those issues. Does he agree that the
Government are doing exactly the right thing in introducing new
accounts—perhaps an improvement to the Post Office card
account—which will enable benefit recipients to get their money
into a low-cost, no-frills bank account, with supporting financial
advice and the benefit of being able to pay by direct debit? Many
people on green giros or even with a Post Office card account cannot
pay through direct debit. The Government are doing a series of things
to help with the budgeting issues described by the right hon.
Gentleman.

Stephen
Timms: The hon. Lady is certainly on to something
important, and that is why the previous Government introduced basic
bank accounts, and encouraged banks to offer those to their customers.
As a result, we significantly increased the number of people with bank
accounts, and reduced the number with no bank account at all. I am glad
that the new Government are continuing that.

The hon. Lady
has made an important point about financial literacy support, which I
welcome. I am glad that the previous Government’s financial
inclusion fund, which appeared to be threatened with abolition, will
continue. It is essential that the new system reflects people’s
lives as they actually are. I hope that the Minister will feel able to
recognise the importance of payments being available at least
fortnightly in some circumstances, rather than
monthly.

Charlie
Elphicke: The right hon. Gentleman is being
extraordinarily generous in giving way, and is a very experienced
Member of this House, having been in the Cabinet in the previous
Government. Will he tell the

Column number: 236

Committee about his knowledge of the move from weekly to fortnightly and
the evidence of the effect that had on people’s ability to
budget?

Stephen
Timms: I am reassured by what we have heard from the hon.
Member for West Worcestershire about the evidence given by the
Department to the Select Committee. I would not feel able to infer from
that that the move from fortnightly to monthly will not cause any
problems. In some cases it most certainly will. Some reassurance,
therefore, about the availability of a more frequent payment in some
circumstances is necessary.

I accept that
what I propose in the amendment could be delivered through the
regulations that will be brought forward. The Minister may be able to
reassure me that that is the Government’s
intention.

Charlie
Elphicke: Are not the overwhelming majority of people in
the world of work these days paid monthly? It therefore makes sense
that the universal credit should be paid monthly. Is there also not a
risk of saying, “People on benefits cannot manage their
money”? There is a danger of being ever so slightly patronising.
We should have more confidence in people who happen temporarily to not
be in work, but who often go back into work and live life just as they
did
previously.

Stephen
Timms: We were reminded by one of my hon. Friends earlier
today that not everyone gets paid monthly. A significant number are
still paid weekly, and there are those who are paid on an occasional
basis as well. It is not the case that everyone gets paid monthly these
days. We should not conclude legislation that is perfectly appropriate
for the majority—even for the great majority—if it
creates serious difficulties for some, and potentially for a
significant number. I want to avoid those difficulties being caused
unnecessarily.

As I have
said, regulations will allow for the provision of such an option,
although I did not find the explanatory note very reassuring on that
point. It may be that the Minister can go a little further than the
note did. For some people—not everyone—this is an
important matter, on which I hope that the Minister will be able to
reassure
me.

Kate
Green: I want to speak briefly in support of my right hon.
Friend. I want to make two additional points. The first is a point that
I raised this morning. There is substantial research evidence to
indicate that people in low-income households run out of money
already in the current system. I am deeply concerned that this change
will make their situation more precarious and put them at risk of
getting into debt. As we know, in those circumstances people are
particularly vulnerable to some of the more extortionate
lenders.

I
would be grateful if the Minister could indicate what assessment he has
made of the group of people who currently struggle financially. How
large does he think the group is? What assessment has he made of their
propensity to fall into debt? That is particularly important, because
debt may trigger the need for hardship payments or advance payments in
the universal credit system, so, clearly, the Government will want it
to be avoided.

Column number: 237

5.30
pm

My
second point follows the helpful briefing that we received from Family
Action, which highlights the difficulty of the benefit claimant in
receipt of employment and support allowance. It describes how in the
weeks when ESA is in payment, it is fine. In one of the intervening
weeks, they receive their DLA, which helps them to cope with the third
week of the month. One difficulty we have with the universal credit is
that more and more separate benefit payments are being bundled in
together. Not all the eggs, but many of the eggs are in one basket.
That also creates a difficulty for people who find it easier to manage
if a little bit of money comes in one week through one benefit stream
and a separate chunk comes in a following week through another benefit
stream. We will lose some of the advantages of that for the small but
vulnerable group of people who find that it is how they can best
budget.

As my right
hon. Friend has said, we are not insisting that the universal credit
should be paid more frequently than monthly. We are asking that that
option be in place, where it is appropriate for vulnerable people and
that we do not worsen their financial situation by failing to have the
option in regulations. We would like to hear assurances from the
Minister on that point. I very much hope that he will give them to us
this afternoon.

Chris
Grayling: As Opposition Members have said, the amendment
clarifies the duration of the assessment periods and the frequency of
payments in universal credit. It provides for universal credit to be
payable for each complete assessment period during the time when the
claimant is entitled to the credit. The length of the assessment period
will be set in regulations, which is broadly similar to what happens
now. That approach will allow us the flexibility to set this important
aspect of the scheme in the light of detailed delivery considerations
and the views of
stakeholders.

I
am aware of some of the issues that the hon. Member for Stretford and
Urmston has raised and of the concerns out there. Regulations can also
provide for exceptions to the rule that universal credit be paid only
for a complete assessment period. Provisions might, for example, allow
for payments for part of an assessment period at the beginning or end
of an
award.

The
assumption behind some of the representations that we have received and
the core assumption that one would read into the amendment is that the
duration of the assessment period will be one month. The amendment
would require the Government to pay universal credit more frequently
than monthly, and, in some cases, payments would be made twice monthly.
Hon. Members are right to say that the existing assessment period is
normally fortnightly. Universal credit clearly adopts a new approach,
because it brings together in-work and out-of-work
benefits.

We
have been clear: we said in the White Paper published last year that we
can see the advantages in paying and assessing universal credit
monthly. If we are looking to move people into work, there is clearly a
logic in helping them to align their family budgeting and financial
planning to the world that they will be in if they are receiving
monthly payments from their employers. However, we are equally well
aware that many on low incomes are used to managing fortnightly
payments of

Column number: 238

benefits, so we are determined to ensure that, however we finally
resolve to approach this issue, there is appropriate budgeting support
to meet the needs of
claimants.

We
want families to manage their financial affairs in a manner that best
reflects the demands of modern life, whether they are in work or out of
work. We will work with stakeholders and external experts to work out
the best way of doing that. We are genuinely attracted by the monthly
approach, but we are sufficiently open-minded to recognise the issues
that it generates. We are certainly not ruling any option in or out at
the moment. We have not excluded the possibility of fortnightly
assessment payments, but we are attracted to the possibility of paying
universal credit on a monthly basis.

Kate
Green: Will the Minister clarify whether any IT issues
ought to be considered, given that we are looking at a two-week payment
system for out-of-work benefits and a four-week payment system for tax
credits? Neither of those is exactly a monthly system. Given that we
talking about bringing together two payment systems that seem to
address different periods into the new single universal credit payment
system, can he give us some information on the operational
considerations to which he has
alluded?

Chris
Grayling: As we are starting from scratch with a new
system to operate the universal credit, there are no particular
administrative issues. We can decide what is best for the claimants,
but we will look at that from both perspectives. We will look at it
from the perspective of what is most likely to help claimants make
progress into work, as well as addressing some of the issues around
vulnerable people, which the right hon. Member for East Ham has rightly
described. We do not intend to specify the payment frequency in primary
legislation. That is where we are at the moment. This is not a new
departure. With existing benefits, we deal with the frequency of
payments under regulations made under existing powers in the Social
Security Administration Act 1992. That is something the shadow
Minister’s Administration used when they were in
office.

As I have
explained, we will take views and look carefully at the issues before
regulations are prepared. This is one of those issues on which it would
be easy for Ministers to rush in ahead of a Bill going through the
House. However, it makes logical sense to take a bit of extra time to
define exactly what we are going to do. There are pros and cons on both
sides of the argument. We want to get it right, and we want to have the
flexibility to enable us to get it right. I recognise the real
expertise that exists on the Opposition Benches in this area. Given the
discussions that have taken place between our Department and the shadow
Minister and his team, I hope that he realises that there are many
aspects of what we are doing where we are genuinely willing to engage
and discuss. At the end of the day, we want to get the
legislation right and for it to be durable for a long period. I give
him the assurance—indeed, I give all hon. Members the
assurance—that we are mindful of the matter and that we are
thinking carefully about it. We have not taken a final decision. There
are pros and cons on both sides, but we are simply using the same
building blocks for this legislation that have been previously used for
existing benefits. On that basis, I hope that the right hon. Gentleman
will withdraw the amendment.

Column number: 239

Stephen
Timms: I am grateful to the Minister for the tone that he
has adopted in responding to the amendment. This is a very important
matter for some people, as he has acknowledged. It is important that
the Department consults carefully on the issue and listens to the
responses that it gets. I am grateful for those reassurances. I beg to
ask leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

Clause
7 ordered to stand part of the
Bill.

George
Hollingbery: On a point of order, Mr Gray, I tried to pass
you a note to warn you that this was coming
up.

The
Chair: There was insufficient
time.

George
Hollingbery: Indeed, I apologise for that. There are a
great many pieces of paper relevant to many different sections, clauses
and paragraphs in the Bill. I am finding my iPad very useful for
bringing each one up as I need to do so. I think it is a matter of
courtesy that I should ask you whether that is permitted, Mr Gray,
because although I think previously you proscribed the use of such
devices, the Select Committee on Procedure has since offered a
different opinion.

The
Chair: The point of order is an interesting one because
the hon. Gentleman is quite right. The Procedure Committee, on which I
serve, produced a report last Thursday that said it may be the case
that the House will consider the question of using electronic devices
in the Chamber in the future. For the moment, the Standing Order that
currently exists and that will continue to apply states that electronic
devices may not be used either in the Chamber or in Committees except
for minimal purposes. It may be that there will be a debate on the
matter—perhaps in Westminster Hall—and that an order will
be brought before the House to change the Standing Orders. As someone
who divided the Procedure Committee on the matter, I have to say that I
strongly support that. However, for now, electronic devices may not be
used except in a minimalist way to receive and send brief
messages.

George
Hollingbery: I thank you for that guidance, Mr Gray. I
offer my apologies for using an electronic device without your
permission.

‘or for
self-employed people an amount in respect of earned income calculated
in the prescribed manner (which may include multiplying some or all
earned income by a prescribed percentage),
and’.

Stephen
Timms: There are two topics dealt with by this group of
amendments. One is about the taper rate that is to be applied to
universal credit and the other is about the treatment of the
self-employed in universal credit. I will, if I may, deal them in that
order.

Amendment 12
deals with the taper. In discussions about universal credit and welfare
reform, the Government have understandably said a good deal about
marginal deduction rates. The subject is important. The Government have
a tendency to overstate the importance of marginal deduction rates as
in-work incentives. The current shortage of work in many parts of the
country is a much more important constraint than anything that the
welfare system provides. The best work incentive in the world is not
much use if there is no work to be had. Given the importance that the
Government have attached to this subject, it is striking that they are
actually making matters worse on this front. The impact assessment that
has been produced for this Bill shows that more people will experience
increased marginal deduction rates than decreased
rates.

The
Government made matters worse before we even got to this Bill. The
number of people facing marginal deduction rates over 71% in 2011-12
was heading towards 365,000 after the Budget of March last year, which
was introduced by the previous Government. Following the June Budget,
which was introduced by the new Government, the number facing marginal
deduction rates in excess of 71% will be 1.71 million, which is an
enormous increase. Those data are taken from a written answer given to
me by the Treasury on 22
March.

Before
we ever got to the Bill, we had gone significantly backwards on this
front. The impact assessment tells us what the Bill will do. Paragraphs
67 and 68
state:

“Some
2.1m individuals will have higher MDRs under Universal
Credit…Many of these cases will move from an MDR of 73% to
76.2%…Around 1.5 million individuals will have lower MDRs under
Universal Credit.”

Marginal deduction
rates, which we have been told are important for work incentives, will
get worse for some 600,000 people—that is more than the number
of people for whom the rates will get smaller. It is true that
universal credit should eliminate the very highest marginal deduction
rates. In relative terms, there were not many people who were on those
very high marginal deduction rates before. Certainly, there were many
fewer than there were under the system that the previous Government
inherited in 1997, when a significant number of people were on very
high rates. The previous Government made significant moves including
the tax credit system, which greatly reduced the problem of very high
marginal deduction
rates.

Nevertheless,
there are still some people—a relatively modest number—on
high rates, and the introduction of universal credit should allow
significant further progress to be made. However there are two caveats
to that. First, it is subject to whatever the Government eventually
decide on child care, and we cannot, at this stage, say precisely what
impact any proposals will have on marginal deduction rates, because we
do not yet know what they

Column number: 241

are, but we look forward to finding out before the Committee concludes
its deliberations on the Bill. We must bear that caveat in mind at this
stage.

5.45
pm

The
second caveat is that, at least in some local authorities, the whole
edifice could be completely messed up by what happens with council tax
benefit. If, as appears to be the intention, local authorities will
have complete freedom in how they divide council tax benefit and the
taper rates that they apply, at least some might once again have
problems with very high marginal deduction
rates.

Charlie
Elphicke: I note that amendment 12 would change the
percentage from 65% to 60%. Will the right hon. Gentleman tell the
Committee how much that will cost?

Stephen
Timms: Once again, I am looking forward to getting to that
in my speech, and I am grateful to the hon. Gentleman for raising the
subject. A large group of people had a marginal deduction rate of 70%
in 2010-11, but they will have a rate of 76.2% in future. That figure
is well established in the impact assessment, which says that the Bill
will change the marginal deduction rate from 73% to 76.2%. I want the
Committee to look back at the position of those people before the June
2010 Budget, when the marginal deduction rate was
70%.

Charlie
Elphicke: The right hon. Gentleman is being courteous and
generous in taking interventions. My research has indicated that a
variance from 65% to 60% would cost about £1.3
billion. Does he agree with that figure?

Stephen
Timms: The hon. Gentleman is right to say that the figure
will be rather more than £70 million, which was what we debated
last time. If he will be a little patient, I will come to that point.
People whose marginal deduction rate will alter from 70% to 76.2% will
face a big change. If they can increase their income in some way,
instead of keeping 30% of that gain, which was the proportion that they
would have received under the former system, they will now keep only
23.8%.

Ian
Swales: Is the right hon. Gentleman aware that, because of
the multiplicity of benefits under the old system, some people have
marginal deduction rates of more than 100% when taking work? I have
certainly met constituents for whom that was the case. Does he welcome
the simplicity proposed in the Bill? I support his comments on council
tax benefit, because that situation can lead to high marginal rates. I
look forward to the Minister’s response on that
point.

Stephen
Timms: That will be an important issue when we get to the
debate on council tax benefit. Let me draw the hon. Gentleman’s
attention to the answer that I received from the Treasury suggesting
that more than 270,000 people currently have marginal deduction rates
of more than 80%. That is a significant number, although the number who
will find their marginal deduction rate

Column number: 242

increased from 70% to 76.2% under this Government is larger at 1.7
million. It is important to keep those figures in
context. I assure him that the number of people on the very high
marginal deduction rate is a great deal smaller now than it was in
1997.

Charlie
Elphicke: The right hon. Gentleman, a former Minister,
said that the number of people with very high rates is small, but the
figure seems to be 500,000. An enormous number of people therefore have
marginal deduction rates of more than 80%.

Stephen
Timms: I did not say that it was a very large number; I
was simply reading the reply that I received on 22 March from the
Exchequer Secretary to the Treasury. I accept that the hon. Gentleman
has a track record of being rather sceptical about figures provided by
Ministers in his Government, but I have no reason to doubt their
accuracy. The answer
says:

“The
following table sets out our estimate of the numbers of working heads
of family in receipt of income-related benefits or tax credits facing a
marginal rate of deduction in excess of the requested
thresholds.”—[Official Report, 22 March 2011;
Vol. 525, c.
952W.]

The
table shows that 270,000 people have a marginal deduction rate of more
than 80% in 2010-11. Following the June 2010 Budget, that number will
rise to 330,000 in 2011-12. It would be wrong to say it was a very
small number. That was not the point that I was making. It is smaller
than the number of those who have seen their marginal deduction rates
increase from 70% to 76.2%. My point is that that is a significant cut
in the incentive that people have to increase their
income.

George
Hollingbery: I hark back again, I am afraid, to Professor
Gregg, whom we asked for evidence about financial incentives, which was
indeed asked for more widely of the panels who came before us. With
higher incomes, the financial incentives were clearly less important.
In many cases, they were apparently unmeasurable. We talked before
about the bipolar nature of the choice: one looks after the entire
range, or one looks after trying to get people back into work. Is this
not a necessary and proper consequence of looking after those people
below the 16-hour threshold, whom we desperately want to get back into
work? We have to get those people through that threshold to allow them
to make
progress.

Stephen
Timms: The hon. Gentleman advances an interesting
argument: that marginal deduction rates do not matter too much because
we are not that concerned about the incentive that people have once
they are in work to earn more or to work longer hours. That is not the
argument that his Front-Bench colleagues have been advancing. They have
made the point that marginal deduction rates are important. My position
is between his and his right hon. Friends. I think that these matters
are important, but not quite as important as Ministers sometimes claim
in pointing to the advantages, as they see them, of the new
arrangements. The hon. Gentleman is right that the key thing is for
people to get into work and ensure there is a clear advantage in doing
so.

I am a
concerned about a matter that also came out of what Professor Gregg
told us last week. Given the still pretty high 76.2 % marginal
deduction rates, some people may well choose to work less rather than
more.

Column number: 243

All the analysis of tackling child poverty makes it clear that
encouraging people who work part-time to work full-time and encouraging
the second member of a couple to go into work or to move from part-time
to full-time work are the keys to effectively tackling child poverty. I
am concerned that we might go backwards on
that.

My
central point is to recognise the importance that the Government have
attached to marginal deduction rates in what they have said about the
new system. The key issue, of course—the thing that really
determines what the marginal reduction rates are—is the taper
rate that is set. The Centre for Social Justice expressed a very clear
view in its “Dynamic Benefits” report, which underpins
much of the thinking in the Bill. It argues for a taper rate of 55%.
Its argument is that that rate represents the best compromise between
improving incentives and containing costs. It
says:

“A
key objective of our proposal is to have a combined tax and benefit
taper rate that is lower than today, yet also progressive with
earnings. This would mean that those with lower and less secure
earnings retain a greater proportion of their benefits than those with
higher earnings. We have identified 55% as the preferable withdrawal
rate, based on the employment responses of our dynamic model. Setting
it higher than 55% would increase MTRs for those working households in
receipt of benefits other than Housing Benefit (even if their net
income was higher than today). As a result, there would be a negative
impact on earnings, and on the number of second earners in
employment.”

That
is the concern. It has already surfaced a couple of times in our
debates, and I am sure that it will surface again in relation to what
the new arrangement will do to the incentives for second earners in
couples.

The Centre for
Social Justice argues for 55%. Mike Brewer of the Institute for Fiscal
Studies told us last week in his evidence that a neutral taper rate
would be 60% and that anything higher than that would damage work
incentives. Indeed, the impact assessment shows us that the 65% figure
adopted by the Government will damage work incentives.

Our amendment
proposes 60% instead of 55%, which is the figure that the Government
have said they favour. The hon. Member for Dover asked a perfectly fair
question about the cost of making our amendment. I know that I have a
figure for that somewhere, but I have not been able to put my finger on
it. Of course, we shall listen to the answer that the Minister
gives.

This is an
important matter. The Government have rightly said that the taper rate
is a key parameter of the new system and that future Governments can
choose to set it at different levels. As we debate the Bill, it is
important that we have a debate about what the right level of the taper
rate should be.

Charlie
Elphicke: If the Minister and the Department for Work and
Pensions confirm that the cost of the right hon. Gentleman’s
policy is £1.3 billion, or thereabouts, will he have that policy
as a pledge that he would push to a vote? Indeed, does he have
permission to do so?

Stephen
Timms:The hon. Gentleman will have to wait until
we take the vote and then he will see how members of the Committee
choose to cast their votes. I am certainly very interested in hearing
what the Minister has to say in response to my comments.

Column number: 244

Amendments 16
and 17 deal with the position of self-employed people. They are
designed to make it explicit that we need separate regulations for
self-employed people. I think that we all understand, at least in
theory, how the system is due to work for people within the
pay-as-you-earn system. There would be real-time earnings data. Every
employer in the land will submit their data monthly to HMRC. Earlier
the Minister suggested, when he was talking about real-time PAYE data,
that submitting that data was a routine matter. I think that he needs
to be a little bit cautious about that suggestion, because companies
are not required at the moment to provide monthly data to HMRC. They
may well compile it routinely, but they certainly do not have to hand
it over to HMRC. Under the new system, they will be required to do so,
presumably within a pretty tight deadline, and they will have to do so
accurately every month. The data will go first to HMRC, which will then
pass it on to the DWP and the DWP will apparently pass it on to local
authorities.

As I have
already said, the timetable for doing all that will be rather
problematic, but we can at least see how it is supposed to work.
However, we have no idea how this system is going to work for
self-employed people. Over the course of a year, it is possible to
calculate the income of a self-employed person. That is already done.
It always has been done for tax purposes and it is also done for the
compilation of tax credits. But how is a self-employed person supposed
to notify the DWP of their monthly income for the calculation of their
universal credit? Will they be included in the real-time earnings
system in some way? If so, how? If not, how will their universal credit
be worked out?

This is all a
bit of a mystery at the moment. I have not seen any suggestion anywhere
as to what the answers to those questions are. I hope that the Minister
will be able to give us some answers today. The longer it takes to work
it out, the longer it will be before the new system is fully up and
running and able to accept all new claims, as is supposed to happen
from October
2013.

6
pm

The
Government have told us that they will treat self-employed people as if
they are earning at least the minimum wage. They will have to notify
the Department of how many hours they have worked. The Government will
assume that they have earned at least the minimum wage in every one of
those hours. Their income will be treated as being at least the product
of those two things. The more hours they admit to having worked, the
more they will be assumed to have earned, and the lower will be their
universal credit. In reality, there is no way that someone starting up
in business—for example, after a spell of unemployment, or
getting back to work for the first time after a few years off work
because of ill health—will be earning the minimum wage for every
hour that they work from day one. That is a completely unrealistic
assumption, as all of us will appreciate.

That is why
the Low Incomes Tax Reform Group told us last week that the
self-employed will be getting

“a much worse
deal than they do currently under working tax credit, particularly if
the proposed income-floor is
introduced”—

that
is the assumption that everybody will be earning at least the minimum
wage as soon as they enter self-employment. It went on to
say:

Column number: 245

“It is
essential in our view to align the definitions of self-employed income
as between universal credit and income tax, in order to recognise
investment in essential equipment and trading losses, and to make the
crucial distinction between profits and drawings. The working tax
credit does this far better than the current social security income
measurement based primarily on cash
flow.”

It
is the latter that the Government seem to wish to put in place to get
self-employed people through the system for universal
credit.

Jenny
Willott (Cardiff Central) (LD): One problem that I am sure
the right hon. Gentleman will have had much experience of as a
constituency Member is that the delay between information being
gathered by HMRC and the individual being in receipt of the tax credit
means that things will often have changed massively. The significant
amounts of overpayment, underpayment and so on that result cause
endless trauma for thousands of people. Does he propose that the
self-employed should have to wait until the end of the financial year
to submit their tax return, as with tax credits, before a calculation
can be made on universal credit? If that is what he proposes, my heart
sinks as a constituency Member, because I can foresee years of trauma
for self-employed people trying to get the universal credit that they
so badly need.

Stephen
Timms: The hon. Lady makes a number of points, and I shall
respond to them. I completely agree about the difficulties caused by
the current tax credit system and the problem of overpayment. She is
absolutely right about that, and we all know of many examples; indeed,
for a time I was the Minister responsible for the tax credit system, so
I am familiar with the difficulties. I am completely persuaded of the
advantages of the real-time earnings data system. It will be a huge
improvement, and I hope that it will overcome the problem of
overpayments that causes such great difficulties. My scepticism is
about whether it can be done on time. That is all. I am sure that it is
the answer. It needs to be done, but I am sceptical whether it can be
done by October 2013.

As for how
self-employed people are treated, the hon. Lady will agree that they
cannot be treated through the real-time PAYE system. Self-employed
people are not in employment, so that seems not to be an option. I am
not bringing a proposal to the Committee on how it should be done. I
hope that the Minister can explain how the Government envisage it being
done, but it seems to be rather difficult.

I am not sure
that income for self-employed persons can be defined on a monthly
basis, because there will be all sorts of variations from one month to
the next. In some months there will be more money going out in costs
and little income, but other months will see more income than
expenditure. I am puzzled how the universal credit system will do that
on a monthly basis. However, I am sure that many of the finest minds in
the Department for Work and Pensions have been working on that, and I
look forward to hearing the answer. The amendment would merely make it
explicit that regulations will be needed to explain everything, because
at the moment it is a bit of a
mystery.

On
a separate point, the assumption that anyone who is in self-employment
will earn at least the minimum wage for all the hours that they work is
an unrealistic

Column number: 246

assumption. The Low Incomes Tax Reform Group has made the point that the
tax credit system works much better than that arrangement would for
self-employed people. The tax credit system does not assume a minimum
income. It is based on information about actual income. As the hon.
Member for Cardiff Central has said, it is often in arrears, but at
least it uses a realistic figure. It appears that that is not going to
be in the universal credit. I am worried that that will discourage
people from moving into self-employment at the exact time when that is
the right thing for many people to do. I am concerned that this is one
of a growing number of examples of incoherence in Government
policy.

Different
Departments are pursuing policies without talking to each other very
much, and they are ending up undermining each other as a result.
Sometimes, as is the case here, that is happening between
different parts of the same Department. Yesterday saw the
launch of StartUp Britain, where the Prime Minister
encouraged people to start up businesses and promoted
entrepreneurship. Indeed, this Department has itself reintroduced the
enterprise allowance, designed to encourage people to move into
self-employment. However, through universal credit, the Department is
also offering what the Low Incomes Tax Reform Group says is a much
worse deal for the self-employed than that offered by the tax credit
system. The fact that one bit of the Department is discouraging people
from entering self-employment while another is encouraging them to do
so means that there is, at the very least, a bit of incoherence and the
potential for a serious
mess.

We
need to get a proper grip on that area and to put in place a coherent
policy for supporting self-employment. I hope that the Minister will be
able to give us some indication of what the system for calculating
universal credit for self-employed people will look
like.

Kate
Green: Briefly, I want to ask some questions about the
proposals for self-employment. I hope that the Minister will be
helpful. One of my concerns about imputing income at the level of the
national minimum wage to a self-employed person, especially in the
early stages of a business, which could last some time, is that it may
bear no relation whatsoever to the actual income that they derive
during that start-up period and for some time to come. My concern
relates to the equalities impact of the proposal, and I would be
grateful if the Minister addressed
that.

We
know that women may be keen to start businesses that they can run at
home, because it would enable them to combine earning money with their
child caring responsibilities. One of either Mumsnet or
Netnums—it is always difficult to remember which is
which—is extremely concerned that the measure will have a
particular impact on those women who are beginning to set up a business
at home. If too much income is imputed to them from that business in
the early stages, they will either, as my right hon. Friend has pointed
out, be incentivised to under-declare the number of hours they work,
or, more likely, work less than they would like in order to get the
business off the ground as quickly as possible. I would be grateful if
the Minister commented on the proposal’s implications for women.
I am sorry that this may become a running theme of mine as we proceed
through Committee, but it is a real issue and I would like the Minister
to comment on it.

Column number: 247

Young people
are being actively encouraged to set up their own businesses. Indeed,
we know that there is quite an appetite among young entrepreneurial
people to do so. I would be interested to hear from the
Minister—I know that it is an area of interest to him—how
the Work programme, and the support that it gives to young people,
might begin to work with this provision. They are being encouraged to
set up on their own, to run their own businesses and perhaps in time
become employers, which would be a very welcome development. How does
the Minister feel that the impact will be felt by young people, who
will be entering the world of work uncertainly and will need that extra
support and stability if they are not to lose heart about work very
early on in their working lives, and perhaps leave the world of work
for a very long time? I would be interested to know whether the
Minister has given any particular consideration to how young people may
respond to that particular provision, and whether he has any concerns
about
that.

Lilian
Greenwood (Nottingham South) (Lab): I am reminded of a
meeting I had only last week with a group of young men who were working
for Groundwork on the future jobs fund. They were young men who had a
history of offending but who fortunately, through the help and support
that they had received through Groundwork, were developing skills in
horticulture. In the course of our discussion, we said that
self-employment might be a way forward for them, because of the
difficulties that they would face, because of their history, in
obtaining employment, particularly in a difficult labour market. Does
my hon. Friend agree that they are a group who could be particularly
affected by these
measures?

Kate
Green: That is a really interesting example from my hon.
Friend’s constituency. Interestingly, I had an instance in my
own constituency, just the other day, of a young man who had been
working for a local media arts company as a photographer on the future
jobs fund, and who had used that six-month period to gain the address
book, the contacts book and the skills to undertake some of the
specialist training to enable him, now that his future jobs fund
placement is coming to an end, to set up on his own. He was startled to
realise that the support he had received under the future jobs fund,
which he had very much appreciated, might be compromised both for
future potential participants—as the fund will sadly no longer
be available to young people—and because in the early weeks of
setting up his business, he might be imputed as earning more than he
actually expected. It was already a big step for that young man to move
into self-employment, unclear about what his financial circumstances
would be. We do not want to do anything to make that risk seem greater
than it already
is.

The
other group I want to ask about, in terms of equalities impact, is
people from black and minority ethnic backgrounds. Again, we know that
there is quite a high propensity, in certain ethnic groups, to enter
into self-employment. That is partly, regrettably, a response to the
discrimination that some experienced when employed in the work force.
Often, the only option that they feel is open to them is to set up in
business on their own. We also know, however, from our own world
experience,

Column number: 248

that there is a concentration of small and independent businesses in a
number of our ethnic minority communities. There is, therefore, a
question about what equalities impact assessment has been carried out
in relation to ethnicity, and I look forward to hearing from the
Minister on that.

I am surprised
that the Minister is not sympathetic to the amendment. I know that his
party is an entrepreneurial party and we see it as helping to support
that entrepreneurial spirit. We think that the amendment is
particularly important at a time when we know that the situation is
difficult, with job cuts in the public sector and the hoped-for
expansion and job opportunities in the private sector not yet arriving.
Self-employment is likely to be a more important option for more people
for some time to come. I would very much like to hear from the Minister
on the equalities impact assessment that has been carried out and what
concerns he has about the amendment, which is one that all parties
ought to see as
constructive.

Sheila
Gilmore: I want to address briefly the issue of the taper.
We have already heard much, in the interventions on my right hon.
Friend the Member for East Ham, that suggests that we should be
constantly looking at the whole question of the current financial
position and the Government’s policy of reducing the deficit
rapidly. What we have here is a new benefit that is not due to begin
until later in this Parliament. This is not the rule for today or
tomorrow. As one would expect, it will take time—the next couple
of years—to get the new system into
operation.

6.15
pm

On
that basis, we are looking to the future, and if Government are to be
believed, we should be seeing the light at the end of the deficit
tunnel. That may not turn out to be the case, but if it is, we should
be looking to create a benefit system that will best incentivise people
not only to work, but to work more if they have the opportunity. We
must look to the evidence that we received from a substantial number of
people and also look at the thinking of people who have been advocating
a system of this kind for some time. Those from the Centre for Social
Justice, for example, were clear that a taper of more than 55%, which
is less than the 60% suggested in the amendment, would be
the best at creating the kind of work incentives that we all want to
see. It is not a question of some people not wanting incentives or not
wanting people to be able to work, but rather of finding the best way
to do that. In looking to the future, I hope that we might reconsider
the suggestion that we cannot afford or should not be having a taper
that would assist, as Professor Gregg said. He said that 60% would be
the neutral
position.

On
self-employment, which is important, I am struck by the fact that, for
example, the DWP is piloting another enterprise allowance scheme. That
is not something that has never been tried before, but they have been
piloting it in Liverpool with a view to rolling it out countrywide in
due course. Much is said about self-employment, and it is challenging
for people to take up, particularly if they have been unemployed,
because anyone who has been self-employed knows how difficult it is to
predict income. It is also difficult to take the plunge, particularly
for those who have a family to

Column number: 249

support—it is a lot easier for a single person to consider
it—because of having to contemplate being on a low income. Many
types of self-employment that I hear people talking about are actually
quite likely to be low paid for some considerable
time.

People
might use skills that they have gained through working in a trade
previously, perhaps as a joiner, plumber or decorator, but it will take
them time, as it would any self-employed person, to build up a customer
base. There will be a lengthy period when they will not necessarily
have a lot of income. If they think that it will be difficult for them
to get support through universal credit, they might decide simply not
to do it, because it is too risky. It is important that we are careful
about how we work out income for people who are entering
self-employment and that we do not set up a calculation system that
acts as an immediate disincentive at a time when self-employment might
be the best route for many
people.

Chris
Grayling: There are two separate issues to deal with here,
and I will take them each in turn. The first is in relation to the
taper. Amendment 12 seeks to provide for a maximum taper in universal
credit. The level of the taper determines the effect of earnings and,
potentially, other income on the universal credit
entitlement.

Most
fundamentally, we talked earlier about spending commitments on a
relatively small scale. It is important to understand that real choices
have to be made about the level of support that the taxpayer can be
asked to fund, and the level of the taper. We have to deal with the
world as it is, not the world as we would like it to be. The truth is
that we are addressing these issues against a background of the most
spectacular financial mess, which was created by the previous
Government.

I listened to
the hon. Member for Edinburgh East and I do not think that she fully
understands the scale of the financial challenge that was left behind.
It is going to take some considerable time—we have set out a
four to five-year programme—to bring down what is by far the
biggest structural deficit in our peacetime history. We cannot
conceivably continue with such a deficit without leaving the country in
a very precarious financial position. That means that choices have to
be made.

We have looked
hard at what we can achieve, and we are committed to this policy. There
is no restriction in the Bill one way or the other about the level of
the taper that has to be set; this clause simply sets in place the
mechanism for establishing a taper, which is absolutely fundamental to
the principle of the universal credit. It establishes the principle
that as someone earns more and works more hours, the money that they
receive tapers away at a steady rate. There is never a doubt that they
are better off in work than they are on benefits.

Inevitably,
when one takes a complex and convoluted system such as we have at the
moment and tries to align it into a simple, easy-to-understand
structure, one has to make adjustments in all direction. That is
basically what we have sought to do. Our judgment is that a
65% taper will provide the work incentives that are at the
heart of the scheme, and that it will make work pay and be seen to pay.
It clearly leaves in place the principle that anyone who is offered a
few extra hours of work will always know that they are better off being
in work than not being in work.

Column number: 250

The universal
credit improves work incentives in three ways. The 65% taper represents
a substantial reduction in the effective tax rates that are paid by
people on low earnings. That is an important point; the
biggest beneficiaries are those on the lowest earnings. We estimate
that about 1.1 million fewer people who are working 10 hours
a week will see a participation tax rate of 70% or more. By removing
the multiplicity of different tapers, we will remove the disincentive to
progress in work. About 700,000 people who see less than 20p in every
£1 of increased earnings will have their marginal deduction rate
reduced to below 80%. We think that those are real achievements in the
face of a difficult financial position, and we hope to do more in the
future. If we can sort out our economic position, we will have the
freedom to do more in the future. If we do so, it will be no thanks to
the Labour party, but a result of the policies that we have put in
place to stabilise and rebuild our economy.

Amendment 12
contains a proposal to reduce the taper from 65% to 60%, and to write
that into legislation. That would cost some £1.3 billion per
annum. The amendment clearly amounts to an unfunded spending commitment
that we cannot afford at present. I am baffled, because we have heard
clear messages from the Leader of the Opposition and from the shadow
Chancellor stating that the Opposition will not make unfunded spending
commitments. An edict went out a few weeks ago to Opposition Front
Benchers stating that every spending commitment had to be cleared by
the Leader of the Opposition and the shadow Chancellor. Is this a firm
spending commitment from the Labour party? This is not a probing
amendment; this is something that the right hon. Member for East Ham
wants to write into primary legislation, which ties the hands of this
Government and future Governments to set the level of the taper at a
maximum level. That is an absolutely clear spending commitment. Is he
making that commitment to the Committee? Are we taking this amendment
seriously? If he is making that commitment, does it carry the weight of
the Opposition formally? If so, will he set out for this Committee how
it will be paid for? What is going to be cut elsewhere to pay that
£1.3 billion bill?

I would love
to be able to stand in front of the Committee and say that we will
deliver a 55% or 60% taper, and that we will maximise the
existing incentives, but unfortunately we have a big mess to clear up.
When we have cleared up that mess, the Bill will give us—I hope,
as a re-elected Administration—the flexibility to take a
decision about how to maximise work incentives in the future. It does
not lock us in or tie us down; it simply creates the framework that I
described
earlier.

The
Opposition want to take that flexibility away. They want to write the
decision into legislation and they will not tell us how the money is to
be found to pay for it. I am afraid that I will take neither them nor
the amendment seriously unless they can start to explain that. We asked
a question earlier about where a much smaller sum of money would come
from. We had no answer at all. I somewhat doubt whether we will get an
answer on the £1.3 billion. The Opposition cannot just come up
with a huge spending commitment, give no detail about how they will
fund it and expect to be taken
seriously.

Self-employment
is a very different issue. I will say to the hon. Members for Stretford
and Urmston and for Edinburgh East who spoke earlier that they are
absolutely

Column number: 251

right to say this is an extremely important issue. My message on the
equalities assessment is that I do not regard self-employment as
something that belongs to any race or gender. I want to see
self-employment, the creation of businesses and entrepreneurship spread
right across every part of our society. What was missed out is that it
is also a good way for people with disabilities to get into employment.
There are many people who can use that as a vehicle to get into
employment.

Let me explain
how the Bill is intended to support self-employment. First, we have not
provided separately for the self-employed, because the same
considerations will apply to their earnings as to the earnings of
employed people. We think it is right to have a consistent set of
disregards and tapers. Where individuals have earnings from both
self-employment and paid employment, as some people do, it is necessary
to ensure that there is a consistent
system.

Kate
Green: I absolutely accept what the Minister says about
consistency in disregards and tapers, but the difference between income
from earnings and self-employed income is that the income from
earnings, not least because it will be gathered through real-time
information systems, will be an accurate picture of what people
actually receive. Self-employed income will be an imputed
amount.

Chris
Grayling: If I can, I will explain how we plan to approach
that issue. The hon. Lady makes an entirely fair point. There are
issues around identifying the earnings that a claimant derives from
self-employment. That is not a new issue. Existing income-related
benefits and tax credits already have rules to determine the earnings
of self-employed people. In general, earnings are assessed on the basis
of their net profits. We intend to follow a similar approach in
universal credit.

The hon. Lady
rightly asked about the mechanics of this approach. We intend to offer
individuals the opportunity to self-declare on a regular basis. We
intend to develop a system to enable them to do that. That seems the
fairest and most straightforward way of ensuring that people can
provide timely information. We have to be careful to avoid the mess
that we have seen with the tax credit system and try to create a
vehicle that allows us to track people’s income on a reasonably
regular basis and enables us to adjust the support that they receive
upwards and downwards, because she is right—self-employment can
go through ups and downs. We will need the ability to be flexible, and
we think that a system of self-declaration is likely to provide the
best vehicle for doing
that.

The
hon. Lady is also right that we are considering assuming a minimum
level of earnings. We have not taken a definitive decision. The point
is that we must achieve a balance. If people are not working and they
are in receipt of benefits or they are in receipt of the universal
credit, there is clearly a job search requirement. A person cannot
simply sit there saying, “I am self-employed, so I don’t
want to look for a job” if in reality they are not bringing in
any income from their self-employment. At the same time, there must be
a common-sense approach that allows people some flexibility to
establish their businesses, and that is one reason why we have
introduced the new enterprise allowance in the way that we have. We
have indeed learned from the experience

Column number: 252

of past schemes. We have added to it the support that has been provided
by professional mentors. We recognise that there is a transition point
and we need to do this carefully. But equally, as I am sure the hon.
Lady would agree, we cannot provide somebody with support indefinitely
without any job search requirements if they are not generating income
from self-employment. We have to achieve the right
balance.

Kate
Green: I am following what the Minister says. I apologise
if I am not as familiar with the enterprise allowance as I probably
should be. But will the Minister confirm that there could not be a
situation where the enterprise allowance actually increased the amount
of income on which someone who was being assessed was not eligible for
universal
credit?

Chris
Grayling: We will take great care. We have a couple of
years in which to do it. We will take great care to integrate the two
schemes. The new enterprise allowance enables somebody to receive the
full amount of what is today called jobseeker’s allowance and
what in future will be the basic amount of universal credit for a
three-month period. They are then allowed to receive 50% of that for a
further three-month period. Basically, that enables them to pay the
bills and cover essential costs for a period, while they are building
up a revenue stream. Alongside that, they receive start-up finance of
£1,000, to buy their initial tools. We have to ensure that, when
we develop the fine detail of the universal credit, we allow sufficient
flexibility to enable schemes such as the new enterprise allowance to
integrate into the universal credit, so that we can provide such
support in the
future.

6.30
pm

We
have not definitively decided how best to address the minimum level of
earnings issue, but I am sure that the hon. Lady will understand the
necessity is there. We cannot be in the position of a jobseeker being
able to say that they are self-employed and so not required to
look for a job. At the same time, we want actively to support and
encourage people into self-employment, and we will need an approach
that enables us to do
that.

There
is no decision on the frequency of any kind of self-assessment point.
The hon. Lady made a fair point about the flows of information
sometimes being monthly and sometimes quarterly. We are open to the
idea of a quarterly point for people to declare their incomes.
Effectively, the treatment of the self-employed is likely to be similar
to the current means of assessment under the tax credits, but with that
more regular reporting, to avoid the kind of substantial overpayment
that we have seen under tax credits. I do not want people starting
their business to wait a year to get a proper and full assessment on
the universal credit and then being left with a complicated bit of
financial dis-engineering to do because the figures are
wrong.

I
give an absolute assurance to Opposition Members that the current
provisions in the Bill—the regulation-making powers and the
provisions for earnings—are designed to encompass employment and
self-employment. We see the two as integrally linked and of equal
importance.

I
respectfully suggest to the right hon. Member for East Ham that he does
not need to press his amendments, and I hope that he will not. We
cannot possibly accept

Column number: 253

the lead amendment, and will certainly vote against if he seeks to press
it to a Division. If he intends to do so, I trust he will give the
Committee the respect of providing some information on how he would
intend to pay for the
proposal.

Stephen
Timms: I am taken aback by the defensiveness of the
Minister in discussion of the taper rate. My hon. Friend the Member for
Edinburgh East must have touched a nerve to elicit such a
response.

Previously,
Ministers have told us that the taper rate is a key parameter and we
ought to be debating it—perhaps it could go up, perhaps it could
go down. The Minister seemed to take great umbrage that we were talking
about it at all. He said that the amendment could not be probing
because it would change the primary legislation, but all the amendments
do that—that is how the Committee works. All we can do is table
amendments that would amend the primary legislation. A probing
amendment is not, ultimately, pressed to a vote. My intention was not
to press the amendment to a Division, but to have a constructive
discussion, hopefully, about what the right level might be for the
taper rate and to consider a range of views on the topic. I am not sure
why the Minister took such
umbrage.

Charlie
Elphicke: If the right hon. Gentleman is not minded to
press the amendment to a Division, will he pledge that a future Labour
Government would change the regulations to ensure that that 60% taper
rate was brought
in?

Stephen
Timms: I, too, look forward to a future Labour Government,
which I hope happens as soon as possible, but no, I am certainly not
committing a future Labour Government to changing the
rate.

Of
course, it would be completely inappropriate to put a particular figure
for the taper rate in the Bill. It is right that it should be set in
regulation. The reason for the amendment is to give us the opportunity
to debate the taper rate, which is what the Committee is supposed to
do, and I am surprised that the Minister seemed so reluctant to engage
on the
subject.

I
am glad that the Minister is a little more willing to engage on how the
self-employed are treated. He is right to recognise the widespread
concern. The Northern Homeworking Project
stated:

“We
do not believe it is realistic to assume the self-employed earn at
least the National Minimum Wage for the hours they work, especially
when they are just getting
established.”

Community
Links, which gave evidence to the Committee last week and does a very
good job in my constituency in the borough of Newham working with
people who want to move into self-employment,
stated:

“We
feel it is wrong to assume the self-employed earn at least the National
Minimum Wage for the hours they work, especially in the early days.
Proposals in the White Paper have the potential to discourage
low-earning self-employed people from declaring their
work.”

Those
organisations and many others will be heartened by the fact that the
Minister has told us that the Government are not necessarily wedded to
assuming that people earn at least the national minimum wage. The White
Paper said that the Government would, so I recognise and welcome that
indication of a shift in their

Column number: 254

position. I hope that the Government will see that through and not make
that assumption. If they did, as the Low Income Tax Reform Group
pointed out last week, they would create a much worse regime for
self-employment than the one that has been established in tax
credits.

I do not
intend to press the amendment, but it was important to debate the
impact of the taper rate that has been chosen and what impact
alternative rates might have. I beg to ask leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

Stephen
Timms: I beg to move amendment 14, in clause 8,
page 4, line 12, at end
insert—

‘(aa) an amount in
respect of prescribed unearned income calculated as in subsection
3(a).’.

The
Chair: With this it will be convenient to discuss
amendment 15, in
clause 8, page 4, line 13, after
‘of’, insert
‘other’.

Stephen
Timms: I want to read to the Committee a paragraph from
the Institute for Fiscal Studies’ analysis of the Bill, which
states:

“In
tax credits, many types of unearned (non-investment) income are
completely or partly disregarded in the current system. Some income,
such as maintenance payments from former partners (which are
particularly important for lone parents) currently does not count as
income for the purpose of tax credits. This income will be considered
as income under the system of Universal Credit, and therefore will
reduce entitlement pound-for-pound.”

That is a very
significant change in the way that maintenance payments are treated,
and a very adverse change from the point of view of those who receive
them.

The IFS
continues:

“Other
types, such as widows’ pensions and private pensions, count as
income for both existing out-of-work benefits and Universal Credit.
Such income will be tapered at 100% under Universal Credit instead of
the 41% in Child Tax Credit for some workless
households.”

Why
are the Government attacking the incomes of widows? For every pound of
income they receive in widow’s pension, under the
Minister’s proposals, they will lose a pound of universal
credit. I am genuinely puzzled about why the Government are doing that.
They are doing the same thing with private pensions. Some weeks ago, I
asked the Minister how much the Government expect to save as a result
of attacking widows’ pensions in this way. In a written answer,
he told me that the Government hope to save £160 million a year.
The proposals for universal credit will take £160
million a year away from widows and a larger sum still––I
think over £400 million according to his
answer––will be taken from those who receive private
pensions.

The amendment
would allow us to define some income as protected by being treated as
earnings. It does not specify which income streams would be affected,
but at least there would be an opportunity to designate some of those
streams of income, which currently are to be deducted from universal
credit pound for pound, so that they can be treated more appropriately.
Widows’ pensions are a good example of where that would be
appropriate. I hope that the Minister will recognise that some kinds of
unearned income ought to be treated, frankly, more respectfully than
the current proposals do.

Column number: 255

Jenny
Willott: Does the right hon. Gentleman agree that the
matter is covered in schedule 1(4)(3)(c), which says that the
regulations
may

“specify
circumstances in which unearned income is to be treated as earned, or
earned income as
unearned”?

Does
that not cover the issue that he is
discussing?

Stephen
Timms: I confess that I missed that point in the schedule.
The hon. Lady may well be right. If the Minister could reassure us that
the Government intend to invoke that provision in that way, it would be
a great relief. What appears to be proposed, and the impact to which
the Institute for Fiscal Studies draws attention, is seriously
worrying. I hope that he can give us some
reassurance.

Yvonne
Fovargue (Makerfield) (Lab): I would like some further
clarity from the Minister about two other items of income. The DWP
website says that statutory sick pay may be treated as earned income,
but some people who are self-employed, for example, claim employment
and support allowance in the first six months of their illness. If they
work for a small employer and know that they will not be able to go
back to work, the employer might ask them to leave, or they may leave
because they feel it is unfair on the employer, who needs the job
filled. For that reason, they claim employment and support allowance,
which must be treated as earnings. Otherwise, people who have suffered
a catastrophic change in circumstances—they could have had a
stroke, cancer or any long illness—will find that, pound for
pound, they lose money.

The other
possibility involves statutory maternity allowance. Statutory maternity
pay is paid through earnings, and presumably—I hope that the
Minister will clarify this—will be treated as earnings.
Statutory maternity allowance is paid to people who move jobs, realise
that they are pregnant and claim it instead of statutory maternity pay.
Again, at a time when their circumstances are changing, it is vital
that that money be treated as earnings and not as unearned income. I
would like some clarity about whether those payments will also be
included in the
measures.

Kate
Green: I join my hon. Friend the Member for Makerfield in
raising questions about statutory maternity allowance, statutory
sickness payments and employment and support allowance. As she said, we
would like to know whether maternity allowance and statutory payments
during parental leave will be treated as earned income under clause
8(3)(a).

Jenny
Willott: I would be grateful if the hon. Lady would
clarify something for me. I am sure that one of the briefing
documents—I cannot remember which one amid the plethora of
papers across my desk—said that unearned income would be treated
in different ways, and that for some there would be a flat-rate
disregard of the entire benefit rather than a reduction of the taper
rate as earned income would be considered. Are she and her colleagues
saying that they want statutory maternity allowance and statutory sick
pay to be tapered, or would they like it to be treated as unearned
income with a flat-rate disregard?

Column number: 256

Kate
Green: With respect, all that my hon. Friend and I are
asking for at the moment is clarification. We are not advancing a
particular position; we are simply unclear how those kinds of payment
will be treated in future. What I really want to say is why it matters.
As my hon. Friend suggests, those are moments of transition for
families and households, when they are potentially financially
vulnerable. For example, how we choose to treat the statutory maternity
allowance is important. If that is handled wrongly, it might represent
a significant loss of income for parents in the first year of their
child’s life, at a time when other Government measures are
resulting in substantial reductions in the incomes of such families. We
know that some payments, such as statutory maternity pay, will be
treated as earned income under the universal credit. Is there any
reason why statutory maternity allowance would be treated differently?
Does the Minister have any intentions for such payments and if so, what
are they? We would appreciate clarification on that
matter.

6.45
pm

My
hon. Friend the Member for Makerfield has also mentioned people who may
be unable to work through sickness, who may be receiving employment and
support allowance rather than statutory sick pay. Under the current
system, such people may be entitled to working tax credit on top of
other benefit entitlements. That system cushions ill people against
loss of wages at a time when they might otherwise see a bigger drop in
their income. If that level of support is in some way diminished under
the universal credit, we are concerned that such people will struggle
to avoid debt and poverty. I would be grateful for the clarification
that the Minister can offer us on those two points. In particular, will
he reassure us that the measure will not leave people worse off than
they might be under the current
system?

Chris
Grayling: Let me start by taking that point, about which
there has, inevitably, been much speculation. We do not intend to leave
people who receive such payments worse off. The Bill provides us with
powers to set regulations that cover the different treatments of
different types of unearned income. Such powers provide scope—as
with earned income—to disregard some of that unearned income, to
apply a taper to any income that is not disregarded, or to take some
unearned income fully into account. That system is simply a replica of
the current one. At present, payments such as statutory sick pay and
statutory maternity pay are treated as earnings in the tax credit and
housing benefit systems. As such, a taper is applied and benefit is
withdrawn more slowly. For people who are receiving out-of-work
benefits, such payments are taken fully into account and the award is
reduced pound for pound. We have said that there may be some logic in
treating payments such as those, which are paid by employers, in the
same way as we do earnings with the universal credit, which would mean
that they would be subject to the taper rate. That would be a step in
the direction that hon. Members would like to take.

Different
considerations apply to other forms of unearned income. The fact that
an income is a replacement for earnings should not automatically result
in its being treated in the same way as earnings. The best example of
that is contribution-based jobseeker’s allowance, which

Column number: 257

is a replacement for earnings. It will continue, in future, alongside
the universal credit; it would make no sense to partially ignore it in
assessing the universal credit.

People receive
unearned income in many ways at present. We seek to put together a
logical approach to avoid anomalies and over-generous treatment of
particular types of income that would encourage benefit dependency. To
take some of the specific points that have been raised, we have not
said that maintenance payments will be taken into account under
universal credit. There are no plans to change the current policy,
which is a full disregard. There is no obligation under subsection
(3)(b) to treat unearned income pound for pound, so there can be a
taper. There is no stipulation that it has to be a full pound for pound
disregard. My hon. Friend has referred to provisions in schedule 1,
which, I hope, provide reassurance to hon. Members,
too.

Stephen
Timms: Will the Minister say a little more about how the
Government intend to deal with widows’
pensions?

Chris
Grayling: I was about to discuss those. We have not yet
decided how widows’ pensions will be treated under universal
credit. The clause allows us to disregard completely some income, to
apply tapers and disregards, or to reduce universal credit pound for
pound. At present, widows’ benefits are taken into account
with a small disregard of £10 a week for income
support and £15 a week for housing benefit. They are
fully taken into account for tax credits, albeit as a taper
rate.

Column number: 258

Although we are finalising the detail, we have no intention of leaving
widows worse off as a result of the measure. We have no intention of
suddenly transforming the situation for widows so that they are
massively worse off. That applies to all the payments, and there is no
great hidden agenda behind all of that to disadvantage groups that have
specialist requirements within our benefits system. We are seeking to
put in place a system that protects and supports people, and there are
no hidden plans under the counter to do down individual
groups.

I
hope that those reassurances are sufficient to allow the right hon.
Gentleman to withdraw his amendment for now. I assure him that we are
trying to do the right thing for those
people.

Stephen
Timms: I am grateful to the Minister. What he has said on
our points has been helpful. He has not given any firm commitments, but
I understand why. This is perhaps one area where it would be useful to
see the regulations in full when they become available. That may be an
instance where there is a clear case for applying the affirmative
procedure rather than the negative one. I am grateful for the
Minister’s reply, and I do not intend to press the amendment to
a vote. I beg to ask leave to withdraw the
amendment.

Amendment,
by leave, withdrawn.

Clause
8 ordered to stand part of the
Bill.

Ordered,That further consideration be now
adjourned. —(Miss Chloe
Smith.)